Orders of the Day — Consumer Credit Bill

House of Commons, 14 July 2005.

New Clause 1 — Data Sharing

Norman Lamb (Liberal Democrat, North Norfolk)

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

As we have discussed many times, the Bill contains much that commands broad support. On Second Reading, I said that two specific issues were absent from it. The first is the problem of the calculation of interest. I note that an amendment on that has not been selected but it needs to be resolved. The second is data sharing. I know that the Under-Secretary shares my concern and that of many others, including the Conservative spokesman, that there is a long way to go in resolving the problem.

In a sense, it goes without saying that the best decisions about whether to lend are made when both parties—the lender and the borrower—have access to full information on which to base a judgment about whether it is appropriate to lend and about the amount to lend in the circumstances. However, at the moment, all too often, only the borrower has access to the full information. For many reasons, borrowers may be in denial about their capacity to service a loan or the amount borrowed on a credit card. We must therefore find a way of ensuring that both parties have access to the full information to make objective and wise decisions based on the principle of responsible lending.

Often, people build up unsustainable debt from several different sources. We are told that that is one of the prime causes of the crises that occur when people suffer health problems and sometimes worse. Increasingly, consumers shop around, obtain different credit cards, spend on them and also take out loans. Perhaps there is no defaulting for some time on any of those products, but unbeknown to each lender, borrowers are building up unsustainable debt and the crisis ensues.

There are two broad problems. First, data sharing generally takes places only when there has been a default—when someone has not paid on time or exceeded an overdraft limit and so on. When no default has occurred, but an unsustainable debt might be building up, information is not shared.

The second problem is historic and I shall describe it in a little more detail shortly. Before I reach the core of the new clause, I make a plea to the Under-Secretary to use his authority to sort out the whole problem. The new clause deals with part of it. It is permissive, not mandatory and therefore enables fuller data sharing. However, there is another side to the difficulty: ensuring that the industry does its duty and takes the opportunity that the new clause provides to make sure that data are shared. The Department of Trade and Industry, the Department for Constitutional Affairs, the industry, the office of the Information Commissioner and the Inland Revenue should get together urgently and set a timetable for achieving full data sharing. Even if the Under-Secretary opposed the new clause, I would welcome a commitment from him to ensure that that happens.

The Treasury Committee's inquiry showed that there is a feeling that the talking has gone on for a long time but there has been a lack of action. Part of the responsibility for that lies with the Government in legislative reform, which we are providing today, and in facilitating and putting pressure on the industry to respond. I know from discussions with the industry that, for example, APACS, the British Bankers Association and FLA are up for it and keen to discuss the matter with the Government to get it resolved.

Let me deal with the historic problem, which the new clause tackles. The Data Protection Act 1998 requires lenders to notify individuals that their data will be shared and the purpose for which they will be used. That legislation led in due course to the industry including standard clauses in the application process to ensure the consent and knowledge on the part of the consumer for any new agreement after data protection legislation came into force. There is no problem for new agreements; consumers have given their consent. However, there is no provision for any account opened or agreement made before the introduction of the standard clauses in contracts. Nothing provides for consumers to agree to their data being shared. Many accounts—credit cards and current accounts—have a long life. I have had my current account all my adult life.

Gerry Sutcliffe (Labour, Bradford South)

A long time.

Norman Lamb (Liberal Democrat, North Norfolk)

Thank you. Many people's credit agreements will predate the introduction of the standard clauses and thus fall outside the scope of the new provisions for ensuring that data can be shared. The industry estimates that some 40 million accounts—42 per cent. of the market—fall into the category where there is no data sharing. How can the Government be serious about sorting out the problem of the lack of data sharing if there is no such sharing on 40 million accounts? Yet the industry says that it cannot share data unless there is a legislative change.

Chris Bryant (Labour, Rhondda)

I am sympathetic to the hon. Gentleman's argument but I wonder whether that is where the problem lies. There have been genuine problems in my constituency of people accumulating debt that they could never afford. The main problem was people starting with a set of new credit arrangements fairly recently. Surely the problem lies with shopping around on the internet or responding to the many millions of pre-approved applications for loans and credit cards. I wonder whether the measure is necessary when we should mostly be saying: caveat emptor.

Norman Lamb (Liberal Democrat, North Norfolk)

I am grateful to the hon. Gentleman for that intervention. As I said earlier, there are two problems. There is the historic problem, which the new clause addresses. There is also the problem that there is generally no data sharing in relation to modern accounts in circumstances in which the borrower does not default. A default triggers the sharing of information. The industry says that it is extending that provision, and that by the end of the year, it will have introduced much broader sharing of information, so that it will be sharing the good data as well as the bad data. If that actually happens, we will see a real advance. I am not suggesting that the new clause will resolve all the problems. We need a combination of legislative reform and pressure on the industry to deliver a much wider sharing of information from the kind of new credit agreements that the hon. Gentleman has described.

Mike Penning (Conservative, Hemel Hempstead)

The industry has a wide knowledge of people's credit. One area that is very dangerous is the transfer of credit card balances to new credit cards. There are some wonderful offers out there, but the problem is that the credit card companies know that a balance is being transferred to a new card, with a whole new credit limit, yet the existing credit card is not cancelled. So the borrower automatically gets double the amount of credit, and they can do that every six months. There is not one credit card company that cancels the card from which the balance is being transferred. Its credit limit remains in place. If someone with a £5,000 credit limit transfers that balance to a new card, they will find themselves with a combined credit limit of £10,000. They can do the same thing six months later. The danger is that the credit card companies have the information, but they are not using it to protect the consumer.

Norman Lamb (Liberal Democrat, North Norfolk)

I thank the hon. Gentleman for that intervention. He makes a good point. There is a big problem with the transfer of credit. Sometimes it can work in the consumer's interest, if they can get a genuinely lower rate of interest and use the system. However, there are real dangers involved. I am not suggesting that the new clause will be a panacea to resolve all the problems of irresponsible lending in the credit industry.

Further to the hon. Gentleman's point, the Treasury Committee noted that people often transfer their credit card balance having received a commitment of a nil rate of interest for perhaps a year. However, they are often not told that new purchases on the card will be charged at the full rate of interest, or that when they pay off some of the balance, it will be taken off the balance transfer, not the new purchases. They therefore find that they are paying interest when they did not expect to. So there are many problems, and they all come down to the practice of responsible lending. We still have a way to go to get the industry fully to understand the importance of that concept.

I am seeking to address one specific historic problem, which is that, in the view of the industry and the Information Commissioner, there cannot be a full sharing of data. The commissioner has advised the industry that it would be a breach of the Data Protection Act 1998 to share data without consent. Incidentally, the problem has got much worse because, as the hon. Member for Rhondda (Chris Bryant) pointed out, there has been a revolution involving people shopping around. In the old days, all our needs were met by one institution—a bank or whatever. Now, people shop around for the best value product, so the need to address the problem of data sharing has grown considerably.

The Information Commissioner has said that, under the old agreements in which there is no provision for data sharing, a lender would need the customer's consent to share such information. The only solution available at the moment, therefore, is for the lender to go to the customer and ask for their consent. Members will appreciate, having sent out political mailings to people, that the response rate to such requests would be tiny. The industry reckons that it would be less than 1 per cent. We cannot resolve the problem simply by seeking consent under the existing rules. New clause 1 seeks to address that.

Mark Lazarowicz (Labour, Edinburgh North and Leith)

I have sympathy with the objectives of the new clause and with the need to promote greater data sharing on an historical basis. Does the hon. Gentleman agree, however, that we need to be careful about forcing consent, as it were, on members of the public? The Data Protection Act is there for a reason, after all. The new clause would give fairly wide powers to credit reference agencies and other organisations to extract consent from individuals. Perhaps the hon. Gentleman should think about the implications of what could be quite a serious breach of data protection principles.

Norman Lamb (Liberal Democrat, North Norfolk)

I fully accept that. I have thought about the issue, and I realise that there is a balance to be struck. We could simply say that this provision breaches the principles of the Data Protection Act; therefore there is nothing we can do. However, the consequence of doing that would be too serious, and I cannot accept that that is the right approach. So while I fully understand the hon. Gentleman's point, it is my judgment that we should reform the law in the way that I have proposed. The consequence of not doing so could be very serious. At worst, it could be a matter of life or death. We have all come across awful cases of people taking their own lives because of the mess that they have got themselves into. There is a responsibility on all of us to address the problem, and to ensure that judgments on offering credit are made with the fullest possible information available.

Some people have expressed concern that the new clause could lead to predatory lending. Other jurisdictions have suggested that, where there are provisions for data sharing, some unscrupulous lenders could use the information to target vulnerable consumers. However, the specific provisions of subsection (4) will address that concern, in that it sets out the conditions under which the information can be shared. It will prevent any risk of the information being exploited for the purpose of predatory lending.

James Brokenshire (Conservative, Hornchurch)

The information could be used to encourage more blanket mailings. More and more paper lands on our doorsteps each day, and we end up being offered credit for this, that and the other. This results in two problems. First, some of the offers are pre-approved, which can be a problem if that mail is intercepted. We all know from our constituency mailbags that people have had their information misused by others. Secondly, such offers can encourage people to take credit when perhaps they should not. Will the hon. Gentleman comment on the protection offered in the new clause to ensure that those things would not happen?

Norman Lamb (Liberal Democrat, North Norfolk)

The hon. Gentleman raises a genuinely serious point. We all suffer from those mailshots, but some people are better able than others to identify the dodgy ones. There has been a revolution in the availability of credit, but there has not been a commensurate revolution in financial literacy and education. People are therefore often very vulnerable to such approaches. However, the conditions set out in subsection (4) ensure that the use of information to target mailshots at vulnerable groups would be prohibited. Lenders would not have permission to do that.

Data sharing is of value to both the lender and the consumer, but when we talk about breaching the principles of the Data Protection Act, we must remember that we are seeking to act primarily in the interests of the consumer. From the lender's point of view, it would enable better, more informed decisions. It would mean a reduction in credit losses and in the amount of time spent handling accounts. From the consumer's point of view, which for me is the most important, it captures those cases to which I referred in which unsustainable debts build up unnoticed, and helps to prevent such a crisis from occurring. It helps existing lenders to monitor what is going on with their customers—if they can see, through access to information, that their customer is building up an unsustainable debt elsewhere, it enables them to make an earlier intervention to warn their customer of the potential consequences. At the moment, the lender is completely ignorant of such looming problems.

Consumers who have a good credit record would also be helped. The acknowledgement of that fact, because of the lack of "dodgy data" through data sharing, improves their ability to shop around to get a good deal. There is also a problem with people who have what is described as a "thin file". Because such accounts might be historic ones going back a long time prior to the Data Protection Act, credit reference agencies might have very little information about many consumers. That in itself often makes it difficult to gain credit, and potentially makes it more expensive.

Therefore sharing of information seems to be in the interests not only of the consumer who is liable to get into real trouble but of the consumer who has a good record. Crucially, it also encourages responsible lending. There is interesting evidence that a reduction in arrears occurs when consumers are informed that their data will be shared. When consumers know that information about what they are doing in relation to one particular account will be shared, it does not half concentrate their minds—it ensures that they try to keep their account under control, and therefore encourages responsible behaviour on the part of consumers. According to some suggestions, arrears could be reduced by as much as 50 per cent. simply through the consumer being aware that their data could be shared, because they realise the knock-on effects in terms of access to credit if they get into difficulty.

The new clause is not mandatory—it does not require the sharing of data. It is permissive. Crucially, therefore, it is not just a panacea on its own—it requires the industry to respond by taking advantage of what it would provide and sharing the information. For example, the industry would need to ensure that its codes of practice establish the principle that data sharing is the right approach, and ought to be done as standard practice.

Adrian Bailey (Labour, West Bromwich West)

I have been following the hon. Gentleman's argument with interest. I feel that it is flawed in certain areas. He has put forward the argument that the publication of a person's indebtedness will provide a disincentive, but under his proposals such a person has the right to prevent the public disclosure of his personal indebtedness. Those two proposals seem contradictory, because anybody who is likely to run up cumulative debts has the right under his new clause to prevent that being public knowledge.

Norman Lamb (Liberal Democrat, North Norfolk)

I do not think that that is contradictory in any way. A safeguard is provided that addresses some of the concerns of other Members. We have already established the de facto principle that all credit agreements these days provide a standard clause for the sharing of information—there is no opt-out, it is a fact, and that is what happens. If consumers want credit, they sign up to that arrangement. The new clause addresses the problem of all those agreements that predated the Data Protection Act, and therefore pragmatically helps to address a serious problem that cannot be resolved in any other way, because the response rate to any request for consent would simply be too low.

That is my new clause in a nutshell. It seems to me that there is a strong case for ensuring that there is full data sharing—not the partial data sharing that we have currently. We must do something effective to ensure that that happens. The time for talking is over, and it now seems to me that the Government should act. The new clause is the way of achieving that.

Charles Hendry (Conservative, Wealden)

I am grateful to the hon. Member for North Norfolk (Norman Lamb) for tabling this sensible and constructive new clause. I am pleased to offer the Conservative party's support for it. On several occasions in Committee, I raised the importance of making advances in data sharing. I also endorse what he said about asking the Government to sort out the issue in its entirety. A range of issues are involved and we are all looking for them to be dealt with together rather than piecemeal.

There is concern that a unique opportunity to protect consumers is being missed. The Bill does an enormous amount in that direction, but the Minister rejected our pleas in Committee for controls on credit card cheques, which was an issue raised by the hon. Member for Rhondda (Chris Bryant).

Gerry Sutcliffe (Labour, Bradford South)

I do not think that I rejected it. I said that I would deal with it through secondary legislation on credit card cheques.

Charles Hendry (Conservative, Wealden)

I accept the distinction that the Minister makes, but he still said no to our amendment, even if he could see where it was coming from.

Chris Bryant (Labour, Rhondda)

The Minister is good at saying no.

Charles Hendry (Conservative, Wealden)

The Minister is extremely good at saying no, as the hon. Gentleman says from a sedentary position. He is the natural heir to General de Gaulle and Margaret Thatcher in saying no so forcefully and regularly.

The Minister also said no to our pleas for measures to stop unsolicited increases in credit card limits and rejected the plea for a responsible lending test, even though it was articulately advanced by his right hon. Friend the Member for Leeds, West (John Battle). We are therefore concerned that things that would greatly help the interests of borrowers are not being taken into account as fully as they might be in this Bill.

As I stated in Committee, we all agree that the nature of the credit industry has changed beyond recognition over the past 30 years, and particularly during the past 10 to 15 years. That is the whole point of the Bill—to bring provisions and consumer protection up to a level at which it can successfully respond to those changes. As Members on both sides of the House will know, in 1971 there was only one type of credit card. Today, there are more than 1,300. Thirty years ago, £32 million was owed on credit cards, but today that figure is almost £50 billion. In fact, there are now more credit cards than people in this country. With that, a range of new issues have arisen. As my hon. Friend the Member for Hemel Hempstead (Mike Penning) said, when people transfer the balance from one card to another, the initial card does not get closed. Someone drew to my attention recently the fact that, although she thought that she had closed a card because she had transferred the balance, she then discovered that charges were being put against that initial credit card. She was told that that was because she had not reported the card lost or stolen—she could not just close it. To me, that shows a significant loophole in the current way of operating.

Competition within the industry and the ability of consumers to shop around with confidence for credit deals is greater now than ever before. Consumers can now apply for and open accounts over the telephone and the internet, which is relatively hassle-free. While the increases in competition and greater flexibility and access to the market for consumers are welcome, at the same time, the risks and dangers of accumulating debt have become all too apparent. Members will recall that, on previous occasions, I drew attention to specific cases of individuals who have run up multiple debts on numerous credit cards—debts that have been far beyond what their income allows them to repay. As a result, they borrow more and more to try to alleviate their difficulties, but all that that serves to do is to wind them further and further into unmanageable debt. It is a spiral of debt that we all know and many of us fear, which, in a number of the cases cited by Members, has led to tragic consequences.

On the day of the Bill's Second Reading, the Daily Mail reported the tragic case of Stephen Lewis, a 37-year-old production worker from Worksop in Nottinghamshire, who ran up debts of £70,000 on 19 credit cards despite earning only £22,000 a year. In the end, he felt that he could escape from that huge debt only by taking his own life, leaving a wife and two children.

Chris Bryant (Labour, Rhondda)

In all the examples that I have encountered in my constituency or read about in the newspapers, the issue has been new credit rather than any of the old credit arrangements. The new clause, however, proposes to punch quite a big hole in some of the principles of our data protection legislation. I wonder whether it is proportionate to the real problem. Does the problem really lie with the historic credit arrangements that many of us may have? The hon. Member for North Norfolk (Norman Lamb) himself said that he had been with his bank all his life—quite some decades now.

Charles Hendry (Conservative, Wealden)

I think that if Stephen Lewis's data had been shared more generally, and if the lenders had known that he was already borrowing on a range of credit cards and was well beyond being able to repay the debt on the basis of his income, the lenders would have been more cautious about issuing new cards. That is the kind of case that concerns us.

I should point out to the hon. Member for West Bromwich, West (Mr. Bailey) that the arrangements will not be mandatory, in that if someone says, "You cannot have access to my data", the lender will decide whether lending to that person is appropriate. The lender will have the extra information that he or she may have something to hide. Most of us would be quite happy for our data to be shared because we have nothing to hide, but when people do have something to hide and say, "You may not share that information", the lender should beware. The hon. Member for Rhondda mentioned caveat emptor. I am not sure of the Latin for "the lender should beware".

Adrian Bailey (Labour, West Bromwich West)

I understand the hon. Gentleman's point, but it seems to be based on the presumption that the lender will always act responsibly. I am sure that that is true of the great majority of the credit industry, but it does not apply to all of it.

Charles Hendry (Conservative, Wealden)

The hon. Gentleman had a chance to vote for the responsible lending test in Committee, but he voted against it. We certainly want more responsible lending and we had the opportunity to make that difference. It was disappointing that the Committee did not accept the amendment to which the right hon. Member for Leeds, West spoke so articulately.

I am grateful to my hon. Friend the Member for Putney (Justine Greening) for drawing my attention to a constituency case that she had encountered. A mother, whose anonymity I shall preserve for understandable reasons, wrote:

"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 a 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."

All Members of Parliament encounter such cases, which cause tremendous concern and distress. The data-sharing arrangements proposed in new clause 1 could help to deal with the problem.

The background to the new clause is a growing debt problem. The number of bankruptcies and repossessions increased by 25 per cent. last year, the number of appeals to the Consumer Credit Counselling Service increased by 60 per cent., and credit card arrears and bad debts are also increasing. Those problems could become worse. We should take the opportunity that the Bill presents and do all we can to prevent them from reoccurring. That means taking every possible step to ensure that lending is responsible. Lenders should be able to use information to ensure that borrowers can afford to enter into agreements.

We all realise that we cannot stop people borrowing too much when they wilfully give lenders incorrect information about their circumstances or other cards that they have, but we can do much more to make such activities more difficult. Data sharing is a crucial part of the process, which is why we support new clause 1. The new clause aims to make it easier for credit companies and credit reference agencies to share their data, so that it is easier to prevent people from entering into unaffordable agreements.

Most members of the credit industry already share, or are about to share, data on their credit agreements with the credit reference agencies, but some problems remain. Lenders first issued credit long before they would have seen a need to share data and, as a result, many credit accounts do not allow for sharing in their respective agreements. Accounts that were opened before lenders decided to share data are governed by the current legislation. They are not eligible for inclusion in credit files until the account holders consent to the sharing of their data.

In the case of accounts with a long life such as credit card or current accounts, decades may pass before the whole portfolio is available. The new clause seeks to solve that problem. As the number of agreements continues to increase because it is becoming easier to enter into them, and lenders seek more sophisticated means of risk management, data sharing becomes increasingly important.

It is beyond question that lenders have a vested interest in lending responsibly. Only a very few loan sharks make their money by preying on people and leading them knowingly into debt that they cannot afford. Responsible lending reduces credit losses, thus creating a financial incentive for the undertaking of credit agreements that do not place the borrower under financial strain. There is also the issue of reputation: lenders do not want to be seen to contribute to individuals' misfortune.

By entrenching in the Bill the credit industry's right to share data, subject to the protection offered to consumers by the Data Protection Act, we can help to prevent individuals from entering into agreements that they cannot afford. Protection of that kind is one of the fundamentals of the Bill, and as the industry evolves yet further over the next few years and decades, the new clause will help to ensure that the level of protection offered to consumers meets those demands.

Chris Bryant (Labour, Rhondda)

As ever, the hon. Gentleman is advancing a rational argument, but the new clause gives a very broad definition of the information that is available. Many people would be nervous about the amount of information that might be available as a consequence. A credit card contains a vast amount of personal information about how people live and many would find it worrying that it could be shared quite so readily. Subsection (4) moderates the position slightly, but nevertheless includes a very broad definition of the purposes for which information might be shared.

Charles Hendry (Conservative, Wealden)

A recurring theme in Committee was the lack of detail in the Bill. The Minister's response was usually that the issues concerned could be resolved in the courts. I should be happy to see an extra schedule or, alternatively, a provision allowing the Secretary of State to issue guidance in statutory instruments. The new clause, however, heads in the right direction. Of course we do not want information about where everyone spends their money to be available to a range of institutions, but if someone has 20 credit cards and has reached the borrowing limit on all of them, it is surely not unreasonable for a lender to have that information before issuing a further card. I agree with the hon. Gentleman that we should be cautious, though. One of the Conservatives' worries about the Identity Cards Bill is the amount of information that would be held and would be generally available.

Mark Lazarowicz (Labour, Edinburgh North and Leith)

I support the intentions behind the new clause, but may I pick up the point made by my hon. Friend the Member for Rhondda (Chris Bryant)? The new clause allows the use of

"any information relating to the . . . financial standing of any debtor".

That could presumably cover details of personal relationships, such as a duty to pay moneys to a former spouse. We need to ensure that we are not giving more extensive powers to credit reference agencies than even the hon. Gentleman would want them to have.

Charles Hendry (Conservative, Wealden)

One could also argue that, if somebody is looking to take out a credit card or to borrow money, the question of whether they are paying thousands of pounds to a spouse is relevant and should be taken into account in assessing their ability to make repayments. Every time that we take out a mortgage or a loan, we are required to tell the lender about our other outgoings. If we are to encourage responsible lending, it is reasonable for lenders to be able to ask such questions.

The thrust of the new clause is supported by the industry and by organisations that exist to protect consumers, such as Which? The new clause enjoys support from both sides of the argument, which shows that we are moving in the right direction.

Mark Lazarowicz (Labour, Edinburgh North and Leith)

We all want to reach the right solution, but under the terms of the new clause, people would have to provide not just financial information but any information. For example, they would have to disclose not merely how much they were paying to an ex-spouse, but any personal information that might have a bearing on their financial standing, such as whether or not they have an ex-spouse. The hon. Gentleman's new clause goes too far in seeking to reach an end about which we are all doubtless in agreement.

Charles Hendry (Conservative, Wealden)

We will all agree that we need to strike a balance between requiring the provision of information that is relevant to a lender's reaching a sensible conclusion about whether lending to a particular person is a fair and reasonable risk, and protecting that person's privacy. However, these issues can be resolved. If the Minister were to say that he accepts the new clause and will bring the Bill back in revised form in another place, but with the word "any" removed, we would be prepared to reconsider this issue.

Gerry Sutcliffe (Labour, Bradford South)

indicated dissent.

Charles Hendry (Conservative, Wealden)

I had a feeling that the Minister might shake his head. We are of course willing to examine different ways of making progress on this issue.

James Brokenshire (Conservative, Hornchurch)

Data sharing is a particularly relevant issue to those on low incomes. Reports such as that produced earlier this year by the Joseph Rowntree Foundation show that it is difficult for them to access credit. A further problem, which is accentuated for such people, is credit assessment and the possibility that their circumstances might change. That strengthens the need for greater data sharing in some form or other. The new clause would enable such sharing and ensure that rational decisions are taken, particularly in respect of those on low incomes.

Charles Hendry (Conservative, Wealden)

My hon. Friend makes an extremely valid point. We are seeking to protect consumers and ensure that they do not get into vast and unaffordable debt. That must be one of the Bill's most important aims and data sharing is intrinsic to making that reasonable aim achievable.

The Minister will be aware that many people would like us to go much further. He will have seen this week's "debt on your doorstep" campaign, in the Daily Mirror, for an affordability test. We are not going so far as that, but I hope that the Minister sees scope for moving in this direction, that he understands that we have advanced these arguments because we genuinely believe that such measures will help to protect consumers and that, on reflection, he will accept the new clause.

Gerry Sutcliffe (Labour, Bradford South)

I am delighted with the quality of our debate on new clause 1, but as Members have said, in discussing it we have to consider the wider context of the Bill, on which there is considerable consensus within the industry, among consumer groups and in all parts of this House. Interestingly, new clause 1 is a joint arrangement between the Conservatives and the Liberal Democrats—a new pact is emerging. That said, I thank the hon. Members for North Norfolk (Norman Lamb) and for Wealden (Charles Hendry) for tabling the new clause, the spirit of which I genuinely accept.

The new clause raises a very important issue that has been debated in the House and by the Treasury Select Committee, of which the hon. Member for North Norfolk was a member. The Government believe that data sharing is a necessary and important means of ensuring responsible lending, but the issues are wider than just those covered by the Consumer Credit Act 1974. They include other types of lending regulated in other statutes, such as the Financial Services and Markets Act 2000, and the important question of data protection, which is regulated by the Data Protection Act 1998. Members of the Association for Payment Clearing Services agreed data sharing principles in 2004 and, among other things, they committed to sharing all data that they are legally able to share.

The Department of Trade and Industry is discussing measures to improve current levels of data sharing with the credit industry, so we are taking the lead that Members have asked us to take. Such measures include working with the credit industry to determine the case for possible legal changes that would allow the sharing of data on accounts dating back to before lenders routinely sought permission to disclose data for credit reference purposes.

Norman Lamb (Liberal Democrat, North Norfolk)

Is the Minister saying that he shares the objective of addressing the historical problem whereby agreements made before the Data Protection Act 1998 have no wording? Does he agree that we need to find a way to ensure that information and data on such agreements is also shared?

Gerry Sutcliffe (Labour, Bradford South)

Yes, and it is important that we continue to discuss data sharing with the industry and with the various Departments. As I said in Committee and throughout our discussions, I do not want people to be able to hide behind the 1998 Act in cases where extreme detriment has been suffered.

We have to work with the industry and with the Department for Constitutional Affairs to determine the case for possible legal changes and to identify possible legal routes that allow for the sharing of data on accounts that date back before lenders routinely sought permission to disclose data for credit reference purposes. It is important, however, that the industry be able to show that the benefits gained from the sharing of these data are proportionate to the legislative measures involved. We all recognise how important it is that lenders have the best possible information to make responsible lending decisions, while ensuring that proper safeguards are in place on the use of personal information. Indeed, my hon. Friends have made such points in opposing the new clause.

Discussions are taking place and the DTI is taking them seriously. I am aware of the effect that getting into credit difficulties can have. We all know of tragic cases from our own constituency experience, and I was particularly saddened to hear about the case of the constituent of the hon. Member for Putney (Justine Greening). The Bill's purpose is to ensure responsible lending and that people borrow wisely and when able to do so.

Charles Hendry (Conservative, Wealden)

How would the Bill prevent cases such as the Putney case from happening again? We have suggested measures that would help, but I am not sure how the Bill as drafted would help in such a case.

Gerry Sutcliffe (Labour, Bradford South)

The unfair credit test—which can help if things begin to go wrong at the beginning of, or during, the loan period—would be an appropriate way of dealing with such a case. There is also the financial inclusion fund, and efforts are also being made to improve people's financial awareness and education. I understand the spirit of and intention behind new clause 1, but it is not the right way forward at the moment. We want to continue our discussions with the industry; indeed the hon. Members for North Norfolk and for Wealden and I are meeting the banks to discuss a range of issues, of which I hope this will be one.

Norman Lamb (Liberal Democrat, North Norfolk)

I still do not understand why the Minister thinks that new clause 1 is not the right way to deal with this issue at the moment. It addresses directly a problem that he agrees needs to be addressed. Why is it not the way to deal with it?

Gerry Sutcliffe (Labour, Bradford South)

The problem is that the new clause would narrow the scope of the Bill and there are wider issues that we need to discuss with the Department for Constitutional Affairs and other bodies.

I understand where the new clause is coming from, but notwithstanding the problems associated with access to personal and other information, its wording is inadequate. Further work needs to be done—not only in this provision, but in other aspects of the financial services industry—to achieve the objectives that the hon. Member for North Norfolk wants to achieve.

Norman Lamb (Liberal Democrat, North Norfolk)

I am grateful to the Minister for indicating his agreement to the objective of dealing with the problem of historic agreements—I referred earlier to 40 million agreements—where there is no sharing of data. It is a start and it is good that the Minister has agreed to that, but it is not enough simply to say that we need more discussions with the industry.

Gerry Sutcliffe (Labour, Bradford South)

The hon. Gentleman will know—we have debated it in Committee and elsewhere—that this is the first Bill to deal with the matter for 30 years. We introduced a White Paper and it was discussed with the industry and with consumer groups who welcomed the broad thrust of what the Bill is intended to achieve. I want to sustain that consensus. It is not a matter of simply wanting to talk more with the industry, as regulations will flow from the concept of the Bill and discussions will be necessary again before they are introduced. It is rather disingenuous to suggest that all we want to do is talk; we do not, we want to act.

Norman Lamb (Liberal Democrat, North Norfolk)

I certainly commend the Minister for being responsible for getting the Bill to this stage, particularly for getting it back on course again when it was effectively lost before the general election. I give great credit to the Minister for achieving that, but the hon. Member for Wealden (Charles Hendry) made the point that the Bill provides a golden opportunity to resolve these problems. The Minister has just made the point that it is a long time since our last opportunity, and if we miss this chance, we know what to expect. Discussions drag on and on between Departments, with the industry and so forth. If we are not careful, we will have missed the chance to act.

Charles Hendry (Conservative, Wealden)

Does the hon. Gentleman accept that what also makes the new clause special is that it is supported both by the industry and by consumer organisations? Some amending provisions have been supported by one side or the other, but on this occasion both sides are very keen to have the legislation in place because they believe that it will help them either to do a better job as lenders or to give greater protection to consumers.

Norman Lamb (Liberal Democrat, North Norfolk)

The hon. Gentleman is absolutely right. I made the point in my opening speech that data sharing is in the best interests of the industry and the consumer. Self-evidently, that is why both sides have supported it. It seems right to press the new clause to a vote because it enshrines an important principle and people out there will wonder why on earth we are not taking the opportunity to proceed.

I should like to deal briefly with several points. Labour Members have asked whether it is proportionate to legislate in this way to deal with part of the overall problem of data sharing. Yes, I think that it is proportionate. First, we all know of the horrors that occur when things go wrong. The extent of the mischief that can be done is so serious that we need to be serious about finding ways of resolving the problem. We fully recognise that the new clause does not solve the problem in its entirety, but it is part of the solution. Crucially, proposed new subsection (3)(b) gives the consumer 28 days to respond to the notice that the information and data is going to be shared.

Gerry Sutcliffe (Labour, Bradford South)

I understand the sincerity behind the hon. Gentleman pressing for a vote. However, both he and the hon. Member for Wealden have said that they enjoy the support of the industry and consumer groups. Have those hon. Members spoken to the industry about the wording of the new clause and, if so, does the industry accept it?

Norman Lamb (Liberal Democrat, North Norfolk)

Absolutely. The British Bankers Association specifically contributed to the process. The wording is agreed absolutely. It seems to me that the opportunity that the new clause gives the consumer to opt out is the perfect way of dealing with concerns about proportionality and the breaching of the principles of the Data Protection Act.

Mark Lazarowicz (Labour, Edinburgh North and Leith)

Will the hon. Gentleman tell the House which consumer organisations have given their agreement to the specific wording in the new clause—not the principle of taking action, but the specific wording?

Norman Lamb (Liberal Democrat, North Norfolk)

I have spoken with Which?, but I cannot, in all honesty, rattle off a list of consumer organisations that endorsed the particular wording. I have carefully considered it and, for what it is worth, I am a lawyer—[Interruption.] I understand that that causes a problem for the Minister. I believe that the provision is proportionate and that it is right to put it to the vote.

Mark Lazarowicz (Labour, Edinburgh North and Leith)

The hon. Gentleman is speaking to the House with the carefully constructed words of a lawyer. He answered my earlier intervention, but it now seems that consumer organisations have not endorsed the specific wording. That is the whole point, because it is the specific wording that is causing problems today.

Norman Lamb (Liberal Democrat, North Norfolk)

I accept that there has been no endorsement of the specific wording, but I am aware of no consumer organisation that objects to it—[Interruption.] The point that I am trying to make is that the new clause is proportionate. First, the consumer is given 28 days to opt out. Secondly, Labour Members complain that some new principle is being created that undermines the whole concept of data protection, but they need to understand that with respect to all the new agreements entered into—the hon. Member for Rhondda (Chris Bryant) referred to them—there is already a wide sharing of undefined data. The Government are not proposing to do anything about what is already a fact of life: a considerable amount of data is being shared in current agreements entered into since the Data Protection Act 1998 and the wording in those agreements provides for that data sharing.

If Labour Members believe that the new clause will undermine the principle of the confidentiality of information, they should be doing something to deal with what is already happening. That is the reality under existing agreements. Through a historic quirk, we are dealing with agreements entered into before the current legislation that triggered standard clauses to deal with the matter. The new clause is designed to address that historic problem.

Finally, it is no good us all wringing our hands and saying, "Data sharing is a good thing; we should all be doing what we can to ensure that it happens", without doing anything effective to make it happen. Unless there is provision such as the new clause or one that achieves the same objective, there will be no sharing of historic data: it is as simple as that.

Mike Penning (Conservative, Hemel Hempstead)

We have a golden opportunity here today—though I pay tribute to the Minister, who has dragged the legislation forward, kicking and screaming in some cases—to put in place the protections that the public deserve. That is why the new clause is so important.

Norman Lamb (Liberal Democrat, North Norfolk)

I completely agree and, in a spirit of co-operation, I say that the hon. Gentleman is absolutely right. If we miss the opportunity that the Bill provides us with now, it could be years before we have a similar opportunity to resolve the problem again. The Minister is not committed to any time scale for sorting the problem out. Talking to the Department for Constitutional Affairs could drag on interminably and will not resolve the problem. That is why it is important for all of us to put pressure on the Government. We do so by pressing the new clause to a vote to get the problem resolved. Without legislative action, it will not be resolved.

New Clause 2 — Access to Information

Charles Hendry (Conservative, Wealden)

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

I am grateful to the Minister for the information that he provided me with in a letter yesterday in response to the many questions that I asked in Committee that he was unable to answer at the time. One of my specific questions was how any notice, such as statements of arrears or other statements, that lenders will be required to provide to borrowers under various clauses will be made available to visually impaired and blind people or those for whom English is not their first language. When I raised that issue in Committee, I sensed that it was something that the Minister and his officials had not thought much about. We should take the opportunity to provide greater clarity on what is expected of lenders in the way that they provide information to or communicate with their customers. That is an important issue that the Bill has left aside.

If we are trying to improve consumer protection by providing borrowers with further and more frequent information about their accounts, it is only right that all consumers have suitable access to it, regardless of any disability or barrier, such as language, that they may have. Thus we should ensure that such notices are available in formats such as Braille and alternative languages where necessary. The Minister said in his letter yesterday that the Office of Fair Trading would need to be mindful that it is meeting disability and language requirements, but that does not go far enough. Instead, we should make such things a necessity, which is what the new clause will do. That is surely only right to protect consumers against discrimination.

Such a step is also important given that the Bill enshrines the presumption of unfairness, rather than a presumption that an agreement is fair unless proven to be unfair. Lenders need greater clarity about what steps they should take if they are to prove, perhaps some years down the line, that they have acted fairly. The new clause would make it clear that lenders are expected to provide information in a way that is accessible to people who are blind or partially sighted and to provide it in alternative languages for people for whom English is not their first language. Crucially, though, in respect of the subsequent proof of fairness, the onus would be on the borrower to request the information in given format, not on the lender to know what special needs and requirements someone may have.

The new clause is important because the sorts of document required under the Bill are central to its workability. If people do not understand what they are signing up to in a credit agreement, if they do not understand the importance of the arrears notice or if they cannot read the OFT guidance issued to them, they will not be able to enjoy the full protection that the Bill is designed to offer them.

Even if the Minister accepts the new clause, I am conscious of the fact that other matters will be left out. For example, people with learning difficulties may not understand what they are being told in a written document about their rights as borrowers. The Independent recently published a letter by the Reverend Paul Nicolson, the chairman of the Zacchaeus 2000 Trust, who said:

"There are seven million adults in the UK with a literacy age of 11 years, who will not be able to read the leaflets—let alone fill in the forms. The increasing incidence in mental illness has made the need to curb door-to-door lenders even more urgent. There is a lack of volunteer support and legal aid."

I am afraid that I have been unable to draft an amendment that would address that issue. Perhaps we will have to rely on the expert and invaluable advice of the citizens advice bureaux to assist people, but that should not stop us taking action where we can and I urge the Minister to accept the new clause.

Norman Lamb (Liberal Democrat, North Norfolk)

I rise briefly to say that I support the importance of the new clause. Unless consumers are able to understand such provisions, there is not financial inclusion but ignorance of the requirements imposed on them. It must be right that someone who perhaps cannot speak English or who is blind has the capacity to understand the information in another way. It also seems right that the consumer in those circumstances should serve notice on the lender to the effect that the information is required in another format. So I certainly support the new clause.

Michael Fabricant (Conservative, Lichfield)

Sadly, we have learned over the past few days what a large proportion of people in the United Kingdom do not speak English or at least do not have English as their first language. All hon. Members on both sides of the House feel that we have a duty of care to all our citizens. For those who perhaps speak Gujarati, Hindi or other languages and bearing in mind the difficulty that some many people face when getting into debt, it is incumbent on the Government ensure that their duty of care is expressed in ensuring that information in languages other than just English and Welsh is made available to those who cannot easily understand English.

Nigel Dodds (DUP, Belfast North)

I agree with the thrust of the new clause, but is it not more widely drawn than is suggested? Would it not be open to people who can speak English as their first language to request a notice in another format and a language other than English? It could be open to abuse by those who wish to request information in another language unnecessarily, when they do not need to do so for the purposes of understanding the notice.

Michael Fabricant (Conservative, Lichfield)

My hon. Friend raises an interesting point. Such abuse is always a possibility. As in all cases, reasonability must be the test. However, it is incumbent on the Government to protect the consumer, and this Government and previous Administrations have a good record in that respect. I hope that the Minister, whom I know to be a flexible man, will accept the new clause; but if he does not, I hope that he will certainly assure us from the Dispatch Box that guidance will be given to lenders. Such information must be made available.

Of course, there is another issue. Many of us who have English as first language find it difficult to understand precisely what some of these provisions are all about, even when they are in large type. It is also incumbent on people to ensure that the information is given in clear, plain, understandable English, not in legalese, which is not understandable to the general borrowing population.

James Brokenshire (Conservative, Hornchurch)

I want to echo the comments of my hon. Friend the Member for Lichfield (Michael Fabricant). The new clause highlights a wider issue: the clarity of the notices that will be issued under the Bill. As the Minister knows, we are talking about issues such as default notices and getting people to understand their level of debt and borrowing. It is important that we provide protection to ensure that people are given as much opportunity as possible to understand the notices that are given to them.

The new clause touches on accessibility and availability. We know of the implications of the Disability Discrimination Act 1995, which ensures that we have facilities for all people to gain access to understandable information. That is what the new clause seeks to provide. I hope that the Minister will listen to the comments that have been made in the debate.

My hon. Friend the Member for Lichfield raised this issue in Committee and has spoken about Braille and ensuring that those who are partially sighted fully understand their credit and commercial situations. That is important because if someone is in default, charges and other penalties may arise as a consequence. We have duty of care, as my hon. Friend said, to ensure that people are fully aware of their predicaments, so that if they are getting into increasing debt, they can seek advice, help and assistance to allow them to address their credit situation.

Gerry Sutcliffe (Labour, Bradford South)

As Members have said, the Bill is a balance between the interests of consumers and the responsibility of lenders to comply with the new requirements and the need to inform consumers.

The new clause would impose obligations on businesses that are already catered for elsewhere, and would impose a significant burden on business. I am surprised that Conservative Members are trying to increase those burdens, as they constantly remind the Government of the many burdens that they think exist already. As the hon. Member for Wealden (Charles Hendry) said, I have written to him on the issue, and I have copied the letter to the members of the Standing Committee and placed a copy in the Library for other Members.

As I pointed out in Committee, it is important to consider the Bill in its context: the other legislation dealing with the provision of business services to disabled persons. So, in relation to providing information to blind or partially sighted persons, the result that the new clause seeks to achieve is already dealt with in the Disability Discrimination Act 1995, which applies generally to business. The Act imposes obligations on businesses to take such steps as are reasonable to make their services available to disabled people.The Disability Rights Commission has published a code of practice on access to goods, facilities and services, which provides advice to businesses as to the manner in which they can comply with those obligations.

Similarly, there is no provision in relation to other languages in the Bill, the Consumer Credit Act 1974 or any similar legislation. Lenders should look to any legislation or codes of practice that may have some bearing on the question. It goes beyond the issue of the provision of notices that can be understood by consumers to more fundamental questions concerning the capability of particular debtors to contract with the creditor. If a person cannot understand documents written in English and the lender knows that, or knowingly disregards it, it may be relevant to the fairness of the relationship when considered in the context of all other relevant factors. Similarly, the regular targeting of consumers who have difficulty in understanding agreements and notices is a matter that could be taken into account by the Office of Fair Trading in assessing fitness under the licensing regime.

As I have said, the concerns of the hon. Gentleman in relation to blind and partially sighted people are addressed generally in the Disability Discrimination Act 1995. As for the question of languages, although I know where he is coming from—I keep repeating that—the Bill provides those consumers with sufficient protection. On a practical level, the new clause would impose a significant, and potentially open-ended, burden on business, which I know that he would not want to do.

I hope that after that explanation the hon. Gentleman will withdraw the motion.

Charles Hendry (Conservative, Wealden)

I very much endorse what my hon. Friend the Member for Lichfield (Michael Fabricant) said about the need for plain English, which is an issue that runs through so many debates. We have only to study the Bills with which we are presented to see incredibly complicated phraseology. Those of us who do not have the legal expertise of my hon. Friend the Member for Hornchurch (James Brokenshire) find that sometimes we have to read statutory instruments several times to understand them. The same applies to credit agreements. When people are taking out such an agreement they want to know exactly what they are committed to, what their responsibilities are and what happens if they default. I completely endorse my hon. Friends' comments on the need for agreements to be written in plain English.

I endorse too what my hon. Friend said about the nature of the documents. They are extraordinarily important to people and there was much discussion in Committee about how they should be delivered—how we could prove that they had been received by the right person and how they should be addressed. The Minister said that he hoped it could be done in a user-friendly way, but our concern was that it if was too user-friendly people might not understand the severity of the message. The documents should probably be stamped with the words "This is an important document that requires your immediate attention", otherwise companies would not be seen to have fulfilled their legal obligations. There is no doubt that such documents are extremely important, so clarity is essential.

The Minister is fundamentally wrong to say that the provision would impose a big burden on business. The industry is looking for clarity and wants to know what is expected of it. He said that if a lender knows that there is a language problem and knowingly disregards it they will be deemed to have acted unfairly. How on earth can they prove in retrospect that they knew or did not know? Due to the way in which the legislation will change, the burden in court will be on the company to prove that it did not act unfairly. Businesses need to know their responsibilities.

The new clause makes it clear that the onus is on the customer to say that they need information in a particular format and that the company should provide it. If the company did not respond properly, it would certainly have acted unfairly, but that would not be the case if it had not automatically offered the information in 25 languages at the outset. The whole problem turns on the nature of what is unfair—something to which we shall return later in our debate. Lenders need to know what is unfair and what is not.

Our small new clause would provide that if a person wants documents in Braille, large type or a language of their choice, they must be given them in that format; but it is up to them to tell the company. That is not a huge additional burden on business.

Gerry Sutcliffe (Labour, Bradford South)

There are codes of practice under the Disability Discrimination Act relating to blind and partially sighted people, so the new clause would be another burden. It is unnecessary because a code of practice already exists.

Charles Hendry (Conservative, Wealden)

I accept the Minister's point about the Act, but there will be a change in the way that the legislation works. An agreement will be seen to be unfair unless proven to be fair. The new clause is a small change which would make the Bill much clearer—something that those lobbying on behalf of disability groups would welcome. There would be a specific requirement, but the onus to ask for it would be on the consumer.

I realise, however, that the Minister will not accept the new clause. Sometimes when he can see where I am coming from he seems to show no desire to help me to achieve my objective. I can see that we shall not make much more progress on the issue; perhaps it can be addressed further in another place. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 3 — OFT's General Duties

Charles Hendry (Conservative, Wealden)

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

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss new clause 5—Annual Report—

'(1) The OFT shall publish a report each year after the passing of this Act reviewing its duties as provided for under the 1974 Act, as amended by this Act.

(2) Reports made by the OFT under subsection (1) shall also review the work of any enforcement authorities, including local Trading Standards Services, who have acted on behalf of OFT as provided for under section 50.

(3) The Secretary of State shall take any report made by the OFT under subsection (1) into consideration when issuing regulations in relation to the 1974 Act, as amended by this Act.'.

Charles Hendry (Conservative, Wealden)

I return again to the important issue of the powers of the Office of Fair Trading, an issue that has been raised with some concern by Members on both sides of the House on Second Reading and in Committee. The issue highlights once again the lack of detail in the Bill, and I remain as disappointed today about that lack of detail as my hon. Friend the Member for Tewkesbury (Mr. Robertson) was when the Bill was initially introduced in the last Parliament and he dealt with it for the Opposition. Six months on, the detail is still missing, and I venture to suggest that it will still be missing in six years' time, unless a court case has been brought to establish it. What a tragic waste of time and money that would be.

The Bill provides the OFT, and other enforcement authorities operating on its behalf, with wide and open powers to regulate the conduct of licensees. We know that its goal is to achieve better regulation—something we all want—but the exercise of those powers will go practically unfettered. The concepts of unacceptable conduct against which the OFT will be judging licensees' business practices are entirely loose and ill-defined, so their interpretation is left entirely to the OFT. As the measure also includes the power to impose the penalties for committing unfair practice, there is no question but that the OFT will be both judge and jury.

With such broad-ranging powers, I am concerned that the Bill contains no provisions specifying the objectives and purposes towards which the OFT must act. Indeed, there is at present no guarantee that the OFT will perform in the manner that Parliament has in mind. By introducing an "objects" clause, new clause 3 would redress that, and install a vital degree of maintenance of parliamentary control over an organisation to which we are entrusting so much authority.

Indeed, it is invariably the case that Parliament controls the exercise of the discretion enjoyed by a regulatory body. I have previously used the example of the Financial Services and Markets Act 2000, whose opening sections make clear the ground rules with which the Financial Services Authority has to comply. In Committee, I challenged the Minister to give a single suitable reason why the OFT should not be subject to a similar control under the Bill. Sadly, he failed to do so, but now that he has had a couple of weeks to reflect, I am happy to give him another opportunity.

James Brokenshire (Conservative, Hornchurch)

My hon. Friend makes an important point about the approach taken for the Financial Services Authority, and the duties and responsibilities that are set out in the Financial Services and Markets Act 2000. The way in which the OFT is intended to operate, and its new regulatory powers proposed in the Bill, is similar to the way in which the Financial Services Authority acts. There is an important parallel to be drawn between the Financial Services and Markets Act and what is proposed in the Bill.

Charles Hendry (Conservative, Wealden)

I am grateful to my hon. Friend for his endorsement. I know that this is his particular expertise, so to have that support is encouraging.

The interests of consumers will be best protected if the body that is seeking to protect them is clear about what it is trying to achieve. The dangerous alternative is that the OFT is left to make things up as it goes along. That is not good regulation and, indeed, could be immensely damaging for consumers. New clause 3 sets out a range of general duties and a series of regulatory objectives which are, lender confidence, to ensure the widest possible access to credit, the protection of consumers and the national interest in having an efficient innovative consumer credit section. It continues:

"In discharging its functions to issue guidance and regulate the conduct of licensees the OFT must have regard to—

(a) the principle that a burden or restriction which is imposed on a person, or on the carrying on of an activity, should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction;

(b) the desirability of facilitating innovation . . .

(c) the desirability of maintaining a competitive market in consumer credit in the United Kingdom; and

(d) the need to minimise the adverse effects on competition that may arise from anything done in the discharge of its functions."

Michael Fabricant (Conservative, Lichfield)

Earlier on my hon. Friend and others of us on the Opposition Benches talked about the need to protect individuals in relation to language and the use of language so that people could understand what conditions they were letting themselves in for by borrowing. Does he think that the OFT might be more focused by virtue of new clause 3(2)(b), which talks about "the protection of consumers"? Would that direct the OFT in turn to direct lenders that language must be clear, plain and, where appropriate, in the language understood by the borrower?

Charles Hendry (Conservative, Wealden)

I am even more grateful than usual to my hon. Friend for that timely intervention. Our concern is that the OFT may go all over the place. It may decide to draw its remit as it chooses. We believe that Parliament has a clear idea of what it wants the OFT to do, so the establishment of duties would be helpful to the OFT in knowing what is expected of it. If the Minister disagrees with any of the duties set out in the new clause, perhaps he could let us know. If he agrees with them, again it would be helpful to know. If he does not yet know whether he agrees, perhaps we should know that. Through the new clause we are trying to give lenders and borrowers much more clarity about the role of the OFT. By ensuring that the industry is clear on what is expected of it by the OFT, it will be enabled to do more to meet the interests of consumers. That is what the Bill is all about, but at present that clarity is missing.

The Minister has stressed that improving transparency is one of the fundamental aspects of the Bill. We fully support that aim, but feel that in certain aspects transparency is lacking and improvements could be made. That is the object of new clause 5. It is a further attempt to address our concerns about the OFT's unfettered powers. It will be operating at considerable length from Government and Parliament, there is a lack of any check against its actions and behaviour in relation to licensees, and it will be both judge and jury.

New clause 5 attempts to go some way towards bringing a degree of balance and control back towards Government and therefore Parliament. It places a requirement on the OFT to produce an annual report, reviewing its work and the work of the enforcement authorities acting on its behalf. It further requires the Secretary of State to take the reports into account before issuing any regulations in relation to the Bill.

The annual report will give Parliament a real opportunity every year to see how the OFT is performing in its extended role and will put an early warning system in place if it is not achieving what is hoped and expected of it. It is but one small measure that does not impose any substantial costs or time on the part of either the OFT or the Secretary of State. It would ensure that the work of the OFT is regularly reviewed and monitored, and that the public, consumers and the credit industry have access to information regarding its operation. It is fair and right, given the extensive powers that the OFT is being granted, and I hope that the Minister will accept it.

Norman Lamb (Liberal Democrat, North Norfolk)

I am absolutely in agreement with the hon. Member for Wealden (Charles Hendry) in terms of the objectives of the new clause, but I am not entirely with him in terms of its content. I know where he is coming from, but I have concerns with subsection (3).

There needs to be a legislative framework for the exercise of these onerous powers; unfettered discretion is dangerous. There is an absence in the Bill of any guidance for the OFT in terms of the exercise of its powers. The case for setting a framework for the discharge of those duties is entirely right. I shall be interested to hear the Minister's response to that case. These issues will inevitably end up being considered by the courts, whether or not there is a framework. It is unattractive, however, to leave everything to the courts—if the courts set the framework without Parliament having any influence over it.

Michael Fabricant (Conservative, Lichfield)

Does the hon. Gentleman agree that it is not only undesirable because Parliament should define to a greater degree precisely what is right and wrong in this instance, but there is the question of time? If we can get the Bill right now—no Bill is ever totally right—businesses will have a clear understanding of where they stand. The courts can take months, sometimes years, to resolve these issues.

Norman Lamb (Liberal Democrat, North Norfolk)

That is a fair point. I have often known occasions where a case is pending, either in the High Court, the Appeal Court or the House of Lords, and it creates uncertainty. I suspect that these provisions will be tested in the courts, whether or not there is a framework, but the prospects of uncertainty are increased if there is no framework in place. There is a strong case for a framework.

Subsection (2) strikes the correct balance. It clearly identifies the central importance of the protection of the consumer, but it also addresses the need for lender confidence and for having an efficient and innovative consumer credit section. I am not entirely sure what "section" means; I think I understand it, but it is not precise.

Subsection (3) presents me with more of a problem. It is the "have regard to" provision. It is entirely appropriate for the clause to set out a number of factors that the OFT should have regard to in exercising its powers, but they seem to be weighted in favour of the industry. Subsection (3)(c) concerns the importance of maintaining a competitive market. One could say that that is important for the consumer, but paragraphs (a), (b) and (d) all relate to protecting the interests of the industry. In that sense it is unbalanced.

It is right for there to be a framework for the OFT to exercise its functions but the new clause does not balance well enough, in terms of the factors that the OFT must have regard to, the interests of the consumer and the interests of the industry.

Gerry Sutcliffe (Labour, Bradford South)

I am glad that normal service has been resumed and that the usual relationship between Front Bench spokesmen has been restored. May I nail down the tactic that the hon. Member for Wealden (Charles Hendry) has used quite charmingly throughout Committee? He argued that the Bill is too general and that there is not enough detail, conveniently forgetting the process that has produced it. A White Paper was published, and there was a full consultation on the issues that it raised. We spoke to all the stakeholders, including the industry and consumer groups. The Bill was introduced, and we tried to get it into good shape through the parliamentary process. He accuses me of lack of detail, but the aim of those procedures is to look at the detail of the Bill. Secondary legislation will flow from the measure and, again, there will be detailed consultations and discussions with industry and consumer groups on any statutory instruments. The hon. Gentleman cannot have it both ways. He cannot accuse the Government of a lack of detail while asking for a full consultation with everyone involved. We must strike a balance.

We had an interesting discussion in Committee about an amendment that closely resembled new clause 3. I explained how the Office of Fair Trading should act with regard to its consumer credit functions, as set out in sections 1 to 5 of the Consumer Credit Act 1974. That includes keeping under review both the Act and relevant social and commercial developments; the enforcement and operation of the Act; the production of information and advice; and annual reporting obligations on the operation of the Act. The provisions of the 1974 Act should be read in conjunction with some of the general provisions in the Enterprise Act 2002, particularly the provisions relating to corporate governance and the OFT board; the requirement for an annual plan and report; and the OFT's more general functions, which are set out in sections 1 to 8 of the Enterprise Act. The ground rules for the way in which OFT operates were laid down when Parliament debated and passed the Enterprise Act in 2002, and they recognised the nature of the role given to the OFT. It was not to be a narrow regulator operating within the terms of a strictly defined remit that could limit its approach to problems. There had to be one set of coherent objectives for the OFT, and the Enterprise Act provided it.

We should remember that the OFT is subject to the usual range of accountability measures such as scrutiny by the National Audit Office and appearances before House Committees. It presents an annual report to Parliament and, in addition, it is a signatory to the Cabinet Office enforcement concordat, which commits it to minimising the costs of compliance for business by ensuring that any action it requires is proportionate to the risks.

Michael Fabricant (Conservative, Lichfield)

Bills are published and there is a regulatory impact assessment, to which the Minister referred. However, who works out that assessment? Often assessments say that there will not be a burden on business or on the taxpayer, but when a Bill is implemented hundreds of millions of pounds are spent. Who worked out these particular figures?

Gerry Sutcliffe (Labour, Bradford South)

The hon. Gentleman has been in the House long enough to know who works out the figures. The assessments are made by everyone who has an input into the Bill and its effects. The process is not perfect, but people do their best. As Bills proceed, we try our best to make sure that relevant points are taken on board.

I have explained to the House and the Committee our view of the OFT's duties. Sufficient procedures are in place, and the new clause is unnecessary, so I urge the hon. Member for Wealden to withdraw it.

I thank the hon. Member for Wealden for tabling new clause 5, but it will come as no surprise that we shall resist it. It seeks to impose on the OFT a duty to produce an annual report covering its duties under the Consumer Credit Act 1974 and the work done by Trading Standards Services on the OFT's behalf, as provided for under clause 50. It requires the Secretary of State to take any report produced by the OFT under the new clause into consideration when issuing regulations in relation to the Act. I shall break the proposal down into its components, starting with the annual report.

The OFT is already obliged to present an annual report to Parliament under the Fair Trading Act 1973 and the Enterprise Act. The most recent report was published last month, and it reports on the work done on consumer credit under the Consumer Credit Act and the Enterprise Act. When looking at the work of the OFT it is best to look at its consumer credit work in the context of all that it does, not just its duties under the Consumer Credit Act. Secondly, the new clause would require a report on the OFT's duties under the Consumer Credit Act. One of those duties is to keep the working and enforcement of the Act under review and from time to time to advise the Secretary of State about that. That review and advice covers social and commercial developments in the United Kingdom and elsewhere relating to the provision of credit.

The new clause proposes that the OFT should review the work of enforcement authorities that have acted on its behalf under clause 50. I think that the key issue is the fact that when other enforcement authorities act under clause 50 they do so as if they were the OFT. They are under the direction of the OFT, so a report that treats those OFT powers as if they were carried out by a separate body is not appropriate, given that that is already covered in the OFT's report.

Finally, the new clause would require the Secretary of State to take into consideration any report made by the OFT when issuing regulations in relation to the amended Consumer Credit Act. In fact, my right hon. Friend the Secretary of State goes further than that, and consults many stakeholders, including the OFT, before deciding what action to take. The new clause is unnecessary, and I urge the hon. Member for Wealden to withdraw it.

Charles Hendry (Conservative, Wealden)

I am grateful for the half measure of support from the hon. Member for North Norfolk (Norman Lamb), which is an improvement on what might otherwise have been the case. I am also grateful for his support in principle for the aim of the new clauses.

We can certainly discuss the balance of the new clauses, but we tabled them because we are concerned about the lack of detail in the Bill. I shall deal with the Minister's comments about that in a moment. My hon. Friend the Member for Lichfield (Michael Fabricant) was quite right, as he is on so many matters, that there is a sense of complacency. This is the first time that we have looked at the Consumer Credit Act for 30 years, and we cannot leave it that long to look at the issues again. My hon. Friend may still be here then, as may the Minister, although he will obviously have been in opposition for 26 years. We have been given a tremendous opportunity, and I am disappointed that the Minister did not choose to take it up.

The Minister said that it would come as no surprise that he would reject the new clauses. The only surprise I expect today is his accepting one of my amendments. I hope that a resuscitation unit is available, as it would be quite out of character for him to do so. I am grateful for his detailed and clear response, but my approach is fundamentally different from his. The Minister said that we were trying to have it both ways by asking for detail and a consultation. Consultation, however, will help us to decide what people want in the Bill. One of the things that has been made abundantly clear is the desire for greater detail. If the Minister responded fully to the consultation, he would provide greater clarity in these and other provisions in the Bill.

Essentially, the OFT has a blank piece of paper. Someone will be rubbing their hands and thinking, "Right, I can do what I like." They believe that they do not have to take account of what Parliament has said because they have been given unfettered powers. If Parliament does not like it, that person will be the judge and jury. We have an opportunity to include in the Bill the OFT's role and general objectives. It is a great shame that the Minister does not regard that as desirable or important. I accept that some of our proposals are covered by other pieces of legislation but, nevertheless we should return to this issue. Perhaps the other place can look at it. Accepting that the Minister is standing his ground, however, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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

Gerry Sutcliffe (Labour, Bradford South)

I beg to move amendment No. 7, in page 8, line 16—

'(9A) If an agreement mentioned in subsection (9) was made before the beginning of the relevant period, only amounts resulting from failures by the debtor or hirer to make payments he is required to have made during that period shall be taken into account in determining any shortfall for the purposes of subsection (1)(c).

(9B) In subsection (9A) "relevant period" means the period of 20 weeks ending with the day on which the debtor or hirer is required to have made the most recent payment under the agreement.'.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss amendment No. 4, in page 8, line 20, at end add—

'(11) This section shall not apply if there is no prejudice to the interests of the debtor or hirer.'.

Gerry Sutcliffe (Labour, Bradford South)

Well, we need to get the resuscitation team ready, because I have listened to what hon. Members have said and Government amendment No. 7 is the result. This amendment recognises the concerns of the hon. Members for Wealden (Charles Hendry) and for North Norfolk (Norman Lamb) in relation to the issuing of notices of sums in arrears where the agreement has a repayment interval of one week or less.

The amendment alters the circumstances in which the creditor must provide a notice. Previously, for a notice to be issued, the debtor must have been in arrears to an amount equivalent to four missed repayments. The amendment refines that requirement, so that the obligation to give an arrears notice only arises when the debtor is in arrears to the equivalent of four missed repayments within a period of not more than 20 weeks, ending on the date on which the last missed repayment was payable under the agreement. In those circumstances, the lender is required to provide a notice within 14 days of the date on which the last missed repayment was payable.

I do not believe that the amendment will reduce consumer protection. Many consumers in this sector are vulnerable. But this change recognises the flexibility with repayments that applies in respect of many of those agreements. However, where the debtor has problems, and misses four repayments within the specified period of no more than 20 weeks, or five months, they will receive a notice along with information from the OFT to assist them in dealing with any problems they may have.

While I do not condone or accept that consumers should be in arrears, or that lenders should encourage or permit them to think that that is acceptable, the amendment recognises that the way that lenders administer many agreements with weekly repayments is flexible and caters for the odd missed repayment over time. So to that extent, I accept that the provision of notices under the existing clause could be more than is required in such circumstances. I hope that the hon. Gentlemen will be pleased with the amendment.

Charles Hendry (Conservative, Wealden)

I am grateful to the Minister, especially for meeting the hon. Member for North Norfolk (Norman Lamb) and me last week to talk about the issue of arrears notices. I am pleased that we have been able to agree on Government amendment No. 7 to help to resolve the problems that would have arisen from the Bill's original wording, to which the hon. Gentleman and I drew attention in Committee. That shows how far we can go when the Minister genuinely understands where we are coming from.

The amendment addresses a significant difficulty. In the Bill's original format, there is no distinction between cases in which four payments have been missed in a short period of time, where the borrower is likely to be in arrears, and possibly in some distinct trouble, and cases in which four payments have been missed sporadically, over a much longer period of time. In the latter case, missed payments are likely to have been repaid and amicable arrangements may have been made with the lender. If the Bill does not draw that distinction, lenders will be forced to issue arrears notices to borrowers who, in the latter case, may not be in arrears at all.

The problem is an aggregate one that relates most closely to home credit loans repaid on a weekly basis, where missed payments are not uncommon for most customers during their loan agreement. Indeed, on average, most home credit borrowers miss four payments during the period of a loan. A customer on a one-year agreement might miss one payment at Christmas, because of the increased costs at that time of year; a second in the spring because of a child's birthday; a third in the summer simply because they are on holiday the week the collector visited; and a fourth in the autumn for an entirely different reason. On all occasions, they may have notified the credit company and agreed amicably to repay the missed payments at a subsequent point. However, as drafted, the Bill would require the lender to issue an arrears notice on the missing of that fourth payment, despite the fact that the customer was not in arrears.

As the Minister said in Committee, the customer would not technically be in arrears. In such circumstances, an arrears notice would cause great stress and concern. It would lead to family tension, as the borrower would be forced to explain why they had been issued with an arrears notice, however user friendly the format of that notice might be, when they would contend they are not in arrears because no additional debts or charges had been incurred.

The requirement would also create a bureaucratic nightmare, as potentially every one of the 3 million home credit borrowers would need to be issued with an arrears notice. That also presents a major administrative burden. Assuming that the cost of writing, posting and administration is just £1 a letter, that represents an extra £3 million in administrative costs, which would inevitably be passed on to borrowers in the form of higher charges, and that is the opposite of what the Bill seeks to achieve.

By reducing the time-frame in which the four payments must be missed before an arrears notice is required to be issued, from the entire length of the agreement to 20 weeks, we can overcome many of those difficulties. I am particularly pleased that the Minister has responded to our request that the period should be 20 weeks rather than the 26 weeks that he initially proposed. I am grateful for his flexibility. A 20-week period will be far more indicative of a customer in trouble, and will help to reduce the unnecessary distress and bureaucracy caused by issuing incorrect notices. Perhaps raising the number of payments missed from four to six would have helped that further, but I nevertheless welcome the Minister's compromise.

I tabled amendment No. 4 to the Bill before I was aware of the exact wording of the Government's amendment, but it remains relevant. I hope that the Minister will not think me churlish after his generosity if I seek to push him one step further. The aim of amendment No. 4 is to ensure that arrears notices will need to be served to customers only if their interests are prejudiced, and that means that they have incurred a charge or penalty on their account. The hon. Member for North Norfolk made that point especially strongly in Committee and it is fundamental to what we seek to achieve.

It looks possible that section 9A of the Government's amendment, which states that

"only amounts resulting from failures by the debtor or hirer to make payments he is required to have made during that period shall be taken into account in determining any shortfall",

addresses that same issue. My hon. Friend the Member for Lichfield (Michael Fabricant) mentioned the need for plain English, and I cannot quite understand the exact meaning of the provision. I would be grateful if the Minister clarified the implication of the amendment in that respect.

I think that the Minister understands why this issue is so important. We totally agree that arrears notices should be issued where a person is genuinely in growing arrears, but we do not think it right that it should be issued if they may technically be in arrears, but that has no other implication for the borrower. To give an example, if I lend the Minister £100—I know that that is highly implausible—to put on the horses this afternoon, he might offer to pay it back in 10 weekly instalments of £10. Of course, as a generous person I would not charge him any interest. If he tells me that he wants to treat Mrs. Sutcliffe to a special night out—we know that he can get a good deal up in Yorkshire—and to miss a couple of payments and so pays it back over 12 weeks instead, he would technically be in arrears, but neither of us would believe that to be the case in reality. It would be a reassignment, with no further debt or charge involved. The same is true in most home credit agreements, so the further change—

Norman Lamb (Liberal Democrat, North Norfolk)

I hope that the hon. Gentleman will be able to clarify an aspect of particular concern. As amendment No. 4 is drafted, the whole section would have no effect if there was no prejudice to the borrower, but the question is what we mean by prejudice. I agree with him on doorstep lending, when payments are missed, but no extra interest is charged and no default charges are imposed. But what about a situation in which the borrower simply stops paying and misses 10 or 12 payments in a row? The hon. Gentleman and I would probably agree that in that situation, there could be a concern that the borrower was getting into difficulties. Does he believe that there would be prejudice, or does he believe that if no extra interest is charged, there should be no default notice? I am concerned that the entire section will not apply if the situation is not defined as one of prejudice.

Charles Hendry (Conservative, Wealden)

I understand where the hon. Gentleman is coming from. We will be glad to complete proceedings on the Bill, so that we can stop saying that.

If the interests of the borrower are not prejudiced—if he faces no further charges, penalties, levies and so on—there should be no need to issue a formal arrears notice. Being in arrears means that some penalty is involved, but if there is none, is it necessary to go through the process of declaring the borrower to be in arrears? They will simply pay back the loan over a longer period, and pay back the amount they expected to pay, not a penny extra. Is it necessary to tell somebody formally that they are in arrears when they may feel that they are genuinely not, having had an amicable discussion with the home credit provider and reached agreement on a different way of repaying the loan?

Norman Lamb (Liberal Democrat, North Norfolk)

In the situation that I described, where payments simply stop and none have been made for 10 or 12 weeks or more, would it not be right for some sort of notice to be issued to warn the person of the consequences of not resuming the payments?

Charles Hendry (Conservative, Wealden)

I understand what the hon. Gentleman is saying. If the borrower had simply stopped paying, they would technically be in default, rather than arrears. Arrears would mean that the lender had agreed to reschedule payment over a longer period. If the borrower stopped paying unilaterally, without consulting the lender, the lender would want to issue a notice quickly, to make sure their own interests were protected. Where the borrower has reached an agreement with the lender about how they will reschedule the loan and pay it back over a slightly longer period, and where the lender's interests are not prejudiced, a clear case can be made as to why the borrower does not need to be issued with an arrears notice.

The change is entirely in keeping with the spirit of the Bill and will benefit borrowers, who must be our top concern. I hope that if it is not implicit in the Government's amendment, the Minister will agree to that change now. I know that he has had the opportunity to receive further guidance on the matter, so I hope that he can provide the clarity that I seek.

Norman Lamb (Liberal Democrat, North Norfolk)

There is no point in repeating what has already been said, so I shall be brief. I put on record my appreciation of the Minister's readiness to meet us, hear our arguments and respond by way of a compromise to reduce the period to 20 weeks. That is a sensible compromise which recognises how doorstep lending works.

My big concern, to which the hon. Member for Wealden (Charles Hendry) has alluded, is that in many agreements there is no prejudice as a result of occasional payments being missed. The two parties agree to postpone the payments, they are paid at a later date, and no extra interest or penalty charge is incurred. In situations where there is no prejudice, it seems over-bureaucratic and potentially quite scary for the borrower to require the lender to serve an arrears notice. The Government amendment is a compromise, but it addresses our concerns in a reasonable way.

On amendment No. 4, I am with the hon. Member for Wealden on the principle of it. I have concerns about the workings of the clause as drafted. It removes the whole of the effect of the section where there is no prejudice. I still have a sense that where payments stop for a considerable period, it may well be appropriate for the lender to have an obligation to serve an arrears notice. My concern was to ensure that the arrears notice was not triggered so quickly in the case of doorstep lending. The principle is right, but I have concerns about how it would operate, given the wording of the amendment.

Gerry Sutcliffe (Labour, Bradford South)

We must be careful about the principle involved. The first sign of people having debt problems is that they miss payments. That is why we tabled amendment No. 7. It is a dangerous to allow people to miss payments. I feel strongly about that and I hope the hon. Gentleman will withdraw his amendment. It is dangerous and risky.

There is some confusion about whether amendment No. 4 relates to clause 9. It relates to clause 10, which deals with running-account credit. There is no difference between default and arrears. They are both breaches of the agreement. I hope the hon. Member for Wealden will reflect on what I and the hon. Member for North Norfolk have said. The amendment may relieve the bureaucratic burden on business but it is dangerous. I hope the hon. Member for Wealden will not press it.

Amendment agreed to.

Clause 19 — Unfair relationships between creditors and debtors

Charles Hendry (Conservative, Wealden)

I beg to move amendment No. 5, in page 14, line 11, at end insert—

'(2A) In making a determination under this section, a court shall have regard to guidance published periodically by the OFT.

(2B) Guidance produced by the OFT under subsection (2A) shall be approved by the Secretary of State before publication.'.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

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

No. 3, in page 54, line 33, at end insert—

'(2A) The Secretary of State shall not make an order under subsection (2) bringing into force sections 19 to 21 of this Act until advice and information has been published by the OFT in accordance with section 140D of the 1974 Act.'.

No. 6, in page 64, line 35, at end insert—

'(6) This paragraph shall only apply to credit agreements which will continue for two years or more beyond the end of the transitional period set out in subsection (4).'.

Charles Hendry (Conservative, Wealden)

Clause 19 is undoubtedly one of the central components of the Bill. As I have said, it determines the thrust of what we are all trying to achieve—a better, fairer and more responsive system for consumers. Opposition and Government Members have discussed the new unfair relationships test during the Bill's progress through the House, and we all favour that provision, because it replaces the out-of-date "extortionate test", which has failed to offer consumers adequate protection in a market that has changed beyond all recognition in the past 30 years.

The current imbalance, which does not serve consumers' interests, must be addressed, and the new unfairness test is central to achieving that objective. Extensive debate took place in Committee about the nature of the test, and we continue to have serious reservations about the concept of "guilty until proven innocent", which is alien to British law.

We received representations from both sides of the issue in Committee. Lloyds TSB stated:

"The Bill introduces a new unfair credit relationship test, which means consumers can challenge unfair practices and terms in court. However, the meaning of 'unfair relationship' is vague and the scope of the provision is generally too wide for both consumers and creditors . . . The Bill contains no guidance for consumers as to what constitutes 'fair' or 'unfair' to enable them to identify when they have a valid claim. Similarly, there is no guidance for creditors on how they should conduct themselves to ensure that their actions are not 'unfair'. Unlike comparable legislation in respect of unfair contract terms or financial regulation, there is not even a non-exhaustive list of relevant factors."

From the other side of the debate, a charity, Credit Action, stated:

"The presumption that all relations are 'unfair' unless proved otherwise is in itself unfair, excessive and contrary to normal British law."

We also received representations from the Finance and Leasing Association:

"We reiterate our support for the principles behind the Consumer Credit Bill. However, the combination of the lack of information regarding the unfairness test and the retrospective nature of the test hugely increases uncertainty within industry and could impact critically on the UK's £235 billion per year securitisation market. This market has to date been a very important source of capital for many lenders. Industry is concerned that the Government have not taken account of the potential for the market to be disrupted by retrospective application of the unfairness test. Market risks may ultimately have to be revised, thereby having an adverse impact on the credit ratings of securitisation transactions. This could increase securitisation costs and ultimately have a negative impact on competition and cost in the consumer credit market."

Both borrowers and lenders the support the idea that the situation should be clarified, but we will watch the shift to the unfairness test with the greatest care. That concept already exists in employment law—an employer is assumed to have acted in a discriminatory manner unless he can prove that he has not—but we are wary of spreading it elsewhere.

The focus of amendment No. 5 is that the unfairness test cannot achieve its desired effect unless the present lack of definition about what would be considered "fair" or "unfair" is cleared up. The Bill offers no guidance to consumers or the credit industry on the practices that will fall within or outside the boundaries of that test. Indeed, we do not know where those boundaries lie, which is why both the consumer organisations and the credit companies have asked for greater clarity.

The lack of clarity presents problems on both sides. Consumers, without a thorough understanding of their chances of success through the courts, will be deterred from pursuing cases that, if unsuccessful, could only add to their financial difficulties, stress and problems. On Second Reading and in Committee, we heard about how concerned people are about taking such matters to court. They are often people of very limited financial means and, even if they are supported by outside organisations or on legal aid, they are terrified about taking on a multi-billion-pound corporation in the courts.

The credit industry, without a thorough understanding of what lending practices will be considered inappropriate, will remain unaware of the changes that it might need to make to ensure that its consumers are protected. As a consequence, lenders will be forced to become more cautious in their lending, achieving exactly the result that the Government least want. Those at the margins will be driven to the least scrupulous lenders, to the loan sharks or to the lenders charging the higher rates of interest.

The approach to tackling unfairness in lending must be targeted and consistent. Lenders need certainty from the outset that their contracts are secure and customers with genuine cases need to be clear about where they stand. My amendment aims to reach that level of clarity. It would allow the Office of Fair Trading, under its extended remit as provided for under the Bill, to issue guidance on those circumstances and activities that would be deemed unfair, subject to approval by the Secretary of State. By issuing such guidance, the level playing field that we all want restored will be that much more achievable. The Minister may argue that such guidance is not necessary or that it will somehow act as a constraint, but that argument simply does not hold true, because there are already legislative precedents that show how feasible and effective such guidance can be. The Unfair Contract Terms Act 1997 and the Unfair Terms in Consumer Contract Regulations 1999 demonstrate that it is possible to give sufficient guidance to consumers and creditors by means of a non-exhaustive list of the factors that are relevant to an assessment of fairness.

I draw the House's attention to annexe 1 of the directive on unfair commercial practices, which contains an extensive list of commercial circumstances or practices that are considered unfair in all circumstances. It says that misleading commercial practices include:

"Claiming to be a signatory to a code of conduct when the trader is not . . . Claiming that a code of conduct has an endorsement from a public or other body which it does not have . . . Falsely stating that a product will only be available for a very limited time, or that it will only be available on particular terms for a very limited time, in order to elicit an immediate decision and deprive consumers of sufficient opportunity or time to make an informed choice . . . Establishing, operating or promoting a pyramid promotional scheme where a customer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products . . . Passing on materially inaccurate information on market conditions or on the possibility of finding the product with the intention of inducing the consumer to acquire the product at conditions less favourable than normal market conditions"

and

"Conducting personal visits to the consumer's home ignoring the consumer's request to leave or not to return except in circumstances and to the extent justified, under national law, to enforce a contractual obligation."

All hon. Members would endorse those as activities that would be unfair in all circumstances. There is therefore no good reason why a clear standard could not also have been applied to the Bill.

I also draw hon. Members' attention to the OFT guidance that was issued to all Standing Committee members by the Minister prior to the proceedings, in which the OFT was able to indicate examples illustrative of scenarios where it would consider imposition to be a requirement on licensees. If the OFT is capable of offering these examples, that clearly demonstrates that it is also capable of issuing guidance and examples relating to unfairness. That is a perfectly logical and sensible follow-on, and it is what the amendment calls for.

Unclear and ill-defined legal frameworks do not represent good law making and, in this case, do not represent positive steps towards offering better protection for consumers. We should realise from the precedents that the opportunity is there for us to give the Bill more authority and certainty. I firmly believe that we should seize that opportunity.

Amendment No. 3 aims to ensure greater certainty about what is meant by unfair relationships. Further to amendment No. 5, it requires the Office of Fair Trading to publish guidance on the scope of the unfairness test before the provisions on unfair relationships come into force. It would be unfair and inappropriate if the test were introduced before the advice and information was published.

The new provisions will clearly have a major impact on the way in which credit companies operate but they are not clear about the extent to which those companies may need to change their practices to conform with the Bill's requirements until they have the information. As we know from the Consumer Credit Act 1974, such changes can take a considerable time to implement. It is therefore right and proper that companies receive as much notice as possible. Any mistakes caused by unnecessary hurrying will impact negatively on the consumer.

Let me deal with amendment No. 6 on retrospection. Hon. Members know that the new unfairness test will apply retrospectively to any credit agreement that continues beyond the transitional period, which is set at one year from the date of the commencement of clause 20. Although I do not believe that applying law retrospectively is normally appropriate—indeed, it often represents bad law making—it is necessary in the circumstances that we are considering.

Many credit agreements run for a considerable length of time. Without a retrospective dimension to the Bill, too many people will be left uncovered by the protection that it offers. Given the extent to which the credit industry has changed in the 30 years since the 1974 Act, that would be unacceptable.

Nevertheless, I am worried that the Bill will create substantial unnecessary bureaucracy in relation to retrospection because of the number of shorter-term agreements that could be caught in its grasp. For example, an existing credit arrangement that is due to finish a few months beyond the transitional period will be subject to the provisions of the measure because of those few months. The cost, administration and time expended by lenders on adapting their processes to meet the changes will be significant. As we all know, those charges will be passed on to consumers in higher interest rates or additional charges. The amendment therefore excludes those agreements that will expire in two years after the transitional period. I am not wedded to the two-year period and would be willing to consider a shorter time if that would make it easier for the Under-Secretary to accept the principle of the amendment and if he undertook to table a Government amendment in another place. However, the principle is sound. The new rules and regulations would come into force, as currently planned, for agreements that last longer than two years after the one-year transitional period at the end of that transitional period. We should try to keep bureaucracy to a minimum for agreements with only a short time to run. It will ease the transition process for lenders and consequently help to alleviate the risks of consumers bearing extra costs.

The amendments therefore emphasise a desire for greater clarity in the Bill. The Under-Secretary has resisted accepting such proposals throughout our proceedings and I suspect that he will do so again, but I hope that, on reflection, having heard the argument once more, he will be prepared to budge.

Norman Lamb (Liberal Democrat, North Norfolk)

We support the change in the test. The current test in the 1974 Act has been shown not to be fit for today's consumer market and it must therefore change. An unfairness test generally appears to meet the requirements. It provides some flexibility and it seems appropriate for today's substantial market. However, the lack of clarity and guidance creates genuine concerns.

The hon. Member for Wealden (Charles Hendry) referred to the burden of proof, which effectively means that one is guilty until proven innocent. That imposes an onerous burden. There is no guidance about what would subsequently be deemed unfair by a court and that is an unattractive scenario for the lending industry. It is also unattractive for consumers who are left simply not knowing their rights. The lack of clarity is dangerous in law making for the interests of both the consumer and those whom the measure seeks to control.

It has been said many times by many people, including me, that a court will inevitability consider this test at some point, and lay down guidelines. Is the Minister saying that he wants a court to provide that greater clarity for the industry and the consumer? I do not think that that would be satisfactory. First, it could take months or even years before we learn what the court decides the right guidelines should be for interpreting the unfairness test. Secondly, is it right that a court, rather than Parliament or a body accountable to Parliament, should determine those guidelines? That is an unattractive proposition.

The hon. Member for Wealden referred to other legislation in which attempts had been made to provide guidelines as to what is meant by unfairness, in the particular context of the legislation. He cited the Unfair Contract Terms Act 1977 and certain employment legislation. There are myriad guidelines for understanding what is meant by unfair dismissal. The ACAS code of practice is a case in point. It is provided by ACAS to help employers and, crucially, employees to understand the duties involved. In the context of this legislation, however, there is nothing. That is a serious concern, both for lenders and consumers.

Gerry Sutcliffe (Labour, Bradford South)

I am trying to resist the temptation to get involved in a discussion about unfairness. The hon. Gentleman must consider this issue in the context of the Bill and of the other measures that appear alongside the unfairness test. The whole purpose of the Bill is to provide for transparency and responsible lending. I shall resist going into detail about the unfairness test, because I know that I am not going to convince the hon. Gentleman or the hon. Member for Wealden (Charles Hendry) of its appropriateness, but I ask him to consider the matter in the context of the Bill.

Norman Lamb (Liberal Democrat, North Norfolk)

I absolutely understand the context and I am completely with the Minister in his aim of achieving transparency and responsible lending. I was talking about that earlier in relation to data sharing and it is absolutely the correct objective. That is why I generally support the test of unfairness. It will have a real effect in changing the culture in parts of the industry, and I hope that it will also address the concerns of the people who argue for a cap on interest rates. Under the test, we shall be able to consider all the circumstances, including the wording of the agreement and the behaviour of the parties involved. That is a good thing, but the Minister cannot deny the fact that there are no guidelines on how the provision is to be interpreted. A court will inevitably end up defining that, because Parliament has failed to do so.

Gerry Sutcliffe (Labour, Bradford South)

The concept of unfairness exists in relation to other financial matters. To suggest that this is completely general flies in the face of the fact that such provisions exist elsewhere. Why is the hon. Gentleman trying to tie down what the court may consider? It is 30 years since the existing provisions were introduced, and there could be new ways of doing things that we have not been able to consider, yet he seems to be suggesting that we tie down the ability of the court to consider all these issues. He makes a fair point on interest rate caps and the unfairness test will deal with that issue.

Norman Lamb (Liberal Democrat, North Norfolk)

The Minister is right to say that, at any one time, we might not have considered developments and practices that emerge at a later date. However, if guidance were to be

"published periodically by the OFT",

as the amendment suggests, that would provide the flexibility that he is looking for. It would mean that the guidance could address new developments and practices that had not been thought of when the Bill was introduced. I do not think that he has made an argument for resisting the amendment. In addition, his challenge to me was: why should we seek to tie down the provision? I am not doing that. It does not have to be prescriptive and say that unfairness is, "This and this alone." As the hon. Member for Wealden outlined, however, a test in guidelines could say that particular practices will always be deemed unfair. That does not prejudice the generality of the provision, which allows the Office of Fair Trading and the courts to consider a wider range of practices and ways of behaving, and to rule ultimately that those other practices are also unfair.

Ed Vaizey (Conservative, Wantage)

Does the hon. Gentleman agree that that is precisely the point? At the moment, the consumer has absolutely no guidelines. Surely, under such a Bill, it is incumbent on some official body to give the consumer some guidelines as to what "unfair" means.

Norman Lamb (Liberal Democrat, North Norfolk)

I agree. It is important both for the lending industry and consumers to have a greater understanding of what is intended by Parliament. We are sitting as Parliament setting new rules yet none of us can say precisely how this provision will be interpreted. It is right to provide flexibility for the future, but the amendment does that, as it enables the Office of Fair Trading to meet new developments, practices and procedures that might cause concern. It does not cast the provision in stone but provides the flexibility that the Minister seems to want.

The issue seems to come down to a choice between setting the guidelines through a body that is ultimately accountable to Parliament or allowing the court to do it for us. It will be one or the other—we all know that. The Minister seems to prefer the court doing it at some indeterminate date. I prefer a body that is ultimately accountable to Parliament to set the ball rolling and to have the flexibility to amend the guidelines.

On retrospection, the hon. Member for Wealden raises a legitimate point: two years is too long. It would be too much of a bureaucratic burden suddenly to impose all the new obligations in relation to contracts that are about to expire, but the provision of two years goes too far. I hope that the Minister might respond by accepting that the Bill should provide for a shorter period to exclude agreements that are due to conclude very soon.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

I had not intended to speak on this clause, but I was prompted by the comments of the hon. Member for North Norfolk (Norman Lamb). A fundamental principle is at stake as to who makes law. If the Minister will forgive me, there is a circularity in his argument that we do not want to bind the hands of judges. Actually, judges want precisely such clarity from legislators—they do not want vague legislation because that will inevitably lead to a lack of clarity, and if the hon. Member for North Norfolk will forgive me, only lawyers can gain from that in the long run. We need Parliament to be clear.

As we know, the first thing that a judge will do in such cases is to say, "What was Parliament's intention?" They will look at the Committee Hansard and at the comments of the Minister in particular. The problem is that the Minister refuses to be drawn on the issue of unfairness. The judge will therefore be left in the peculiar situation of having to interpret unfairness when the Minister and the Government have refused to give any guidance. Precisely that court-based approach has led us into this cul-de-sac, under the Consumer Credit Act 1974, with extortionate lending. We ended up with a very narrow interpretation, which was not the fault of the judiciary but of that Bill, too, because the Government did not set out clearly what was Parliament's intention.

Gerry Sutcliffe (Labour, Bradford South)

I realise that I am not following my own advice. I am getting involved and trying to make everyone understand where we are coming from.

The hon. Member for Wealden (Charles Hendry) mentioned the unfair contract regulations and the unfair commercial practices directive. There are already guidelines on what can be considered, which deal with specific issues in the regulations. The unfair credit test involves the substance of agreements and relationships. That is the point that Members are missing. It is the substance that we want the courts to be able to consider.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

I am not a lawyer, but I think that there is a problem here. It is possible that judges could draw on precedent in the form of definitions of unfairness deriving from common law, case law and so forth, which might not coincide with the Government's underlying objective. Unless the Government are specific in this context—for there is case law on unfairness in other contexts—the definition eventually handed down by the courts may not be the one that the Government want. The amendments allow flexibility, so that the general definition can reflect changes in the consumer credit market over time. Ultimately, however, given the direct impact that this may have on our constituents, Parliament should decide on the definition rather than a judge handing down some landmark judgment in a couple of years.

Gerry Sutcliffe (Labour, Bradford South)

As we have discussed unfair relationships at some length today, in Committee and on Second Reading, I will not allow myself to be drawn back into the debate—

Ed Vaizey (Conservative, Wantage)

The hon. Gentleman is already doing that.

Gerry Sutcliffe (Labour, Bradford South)

It may indeed occur.

Amendment No. 5 tries to do two things. First, it seeks to require the court to have regard to any OFT guidance on the unfair relationships provisions when making decisions under clause 19. Secondly, it seeks to require the Secretary of State to approve any OFT guidance on unfair relationships before it is published. As the unfair relationships provisions make clear, the court may have regard to any relevant matter.

The amendment seems to assume that the test is somehow dependent on the OFT's guidance. It is not. The OFT's guidance is simply that: guidance. It will set out the circumstances in which the OFT will act under its powers in part 8 of the Enterprise Act 2002, and it will not seek to interpret or define unfairness. It is not one of the OFT's functions as a regulator to interpret the law for the courts. The courts are not bound by the OFT's guidance and need not have regard to it if it is not relevant to the specific case. Obviously, if the guidance is relevant, which we could expect it to be quite often, the court may have regard to it. The court's application of the new test need not and should not be linked to the OFT's guidance as the amendment suggests. Indeed, as it can have regard to the guidance, the amendment is unnecessary.

The hon. Member for Wealden (Charles Hendry) also wants to make the OFT's guidance on the unfair relationships provisions subject to the Secretary of State's approval. That appears to be based on the requirement in the Bill relating to the OFT's powers to impose civil penalties. In that instance, the OFT is prevented from imposing a civil penalty until it has published a statement of policy that has been approved by the Secretary of State. Given the seriousness of that power, which goes beyond the usual regulatory functions, the Government felt it necessary for the statement of policy to be approved by the Secretary of State.

In the Enterprise Act, Parliament reconstituted the OFT as an independent regulator. Parliament decided that the way in which the OFT used its powers to enforce the legislation for which it is responsible should be free of ministerial control. The amendment would fetter that freedom. It would mean that the way in which the OFT used its enforcement powers in respect of unfair relationships would be subject to ministerial control. We do not accept that that should happen and I earnestly ask the hon. Gentleman to consider withdrawing the amendment.

Amendment No. 3 also appears to suggest that the unfair relationships provisions depend on the OFT's guidance for their meaning and effect. They do not. The OFT's guidance is simply that—guidance. It is guidance on the circumstances in which it will take action, under its powers in part 8 of the Enterprise Act 2002, against creditors who enter into unfair relationships. The 2002 Act provides that the OFT may take action against a breach of specific statutory requirements, including through the unfair relationships provisions, where harm is done to the collective interests of United Kingdom consumers. The OFT's guidance will not seek to interpret or to define an unfair relationship, although it could refer to conduct that it considers may give rise to, or contribute to, unfair relationships.

Ed Vaizey (Conservative, Wantage)

The Minister said in Committee that the unfair credit terms regulations do apply. Will he confirm that he meant the Unfair Terms in Consumer Contracts Regulations 1999? If they do apply, the OFT could surely make that clear in its guidance.

Gerry Sutcliffe (Labour, Bradford South)

People have to comply with the regulations, and the OFT could indeed make that clear. I hope that that satisfies the hon. Gentleman and clarifies the position regarding the unfairness test, although I suspect that it does not, given his view of that test.

The test operates independently of the OFT's guidance and, as I said, the courts are not bound by the guidance and do not have to have regard to it. Obviously, if the guidance is relevant—we can expect that it often will be—the court may have regard to it. A court's application of the new test need not—indeed, should not—be linked to the OFT's guidance in the way suggested in the amendment. I therefore ask that the amendment be withdrawn.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

Notwithstanding the fact that the Minister does not want be drawn down this particular road, will he confirm that, as he seemed to suggest in a recent radio interview, a failure to take account of the ability to pay would constitute unfairness in this context?

Gerry Sutcliffe (Labour, Bradford South)

Here we go again. The last time that we discussed this issue, I doubtless referred the hon. Gentleman to the Pepper v. Hart judgment, pointing out that Ministers do not set specific parameters because that could restrict us in what we are trying to achieve. On the example that he gives, I believe what he says to be right, although perhaps my saying so will cause further problems. None the less, if that is what I said on the radio, it must be right.

Amendment No. 6, which I have had some problem understanding, seems to provide that the unfair relationships provisions should not apply to agreements made before those provisions are brought into force, but which end within a period of two years from the end of the transitional period. It seems to provide an additional transitional period to the transitional period already provided for in the Bill, thereby misconceiving the way in which the transitional provisions work. For the sake of clarity, I will explain those provisions again.

The unfair relationships provisions will apply to all new agreements entered into after the day on which those provisions commence. There is no transitional period for these agreements; indeed, there is no need for one. The unfair relationships provisions will apply only to existing agreements made before the day on which these provisions commence, and which are ongoing after the completion of a transitional period. The provisions will not apply to any such agreements that end before the completion of the transitional period.

The transitional period will be a minimum of 12 months, and the Secretary of State may extend it by order. Different transitional periods may apply to different classes of agreement, so there need not be one transitional period. There may be several, each applying to different classes of agreements, and they may be for different lengths of time. The Department will consult the industry to determine whether particular types of agreements should be treated differently, and it will consider the circumstances in which the period should be extended. Indeed, it has had some preliminary discussions with industry groups.

The amendment would add a further transitional period to the transitional period provided for in the Bill. The transitional period is intended to provide creditors with time to adjust. We have set the minimum period at 12 months, but as I said, it can be extended by different periods for different types of loans. The provisions are flexible, and we have built in the ability to change the requirements if necessary. I therefore hope that the hon. Member for Wealden accepts that the amendment is unnecessary, and that he will withdraw it.

Charles Hendry (Conservative, Wealden)

I am disappointed with the Minister, as we hoped that he would be prepared to think again about this issue. The clarity that we are seeking through this amendment is something that everybody wants, including all the parties, his own colleagues and all those who spoke on Second Reading. Members even wanted such an amendment in Committee; they simply failed to vote for it.

There is a huge demand for greater clarity and I believe that the Minister will, in time, look back and regret the missed opportunity. The Bill will be less effective and the interests of consumers will be prejudiced. The people whom the Minister is most seeking to protect will suffer the most, because lenders will become more cautious. Perhaps, in many years' time, when the Minister is wrapped in ermine and writing his autobiography entitled, "I Can See Where You Are Coming From", he will realise that he missed a golden opportunity. He had the chance to make a difference, but did not take it. We must now expect huge delay before the legislation will work effectively.

The Minister said that the twin purposes of the Bill were transparency and responsible lending. However, unless the detail that we are asking for is there, neither of those purposes will be brought effectively into practice. The Minister is condemning us to leaving all the sorting out to the courts. That means that we will have to wait years. It will take many years for cases to be brought to court, go through all the appeals processes and the rest of it. It will also cost a phenomenal amount of money. As was said earlier, the only people to benefit are the lawyers. It could not have been the hon. Member for North Norfolk who said it, because he is a lawyer. [Interruption.] Yes, perhaps he can see a new career opening up for him outside this place. The costs will be huge.

We heard earlier about the fear factor—the sheer concerns that people will have when they face the option of taking on a massive multi-billion pound corporation in the courts. People will decide that they simply cannot go through with it. Even if they have full backing from the consumer associations, they will say that they just cannot face going through it all and will back down. The issue will drag on for longer and longer. Once a judgment is eventually reached, there will be debate about its implications. Either it will mean that the lenders could have been less cautious in the intervening years—they will subsequently know with greater clarity what they can do—or alternatively, millions of agreements will have to be rewritten and compensation paid because the system was not clear enough in the first place.

All we are asking for is more clarity in defining fairness. It does not have to be absolutely detailed; it could be as we cited in the European directive, setting out some measures that could be agreed on all sides to be clearly unfair in all circumstances. That would have been a step forward in itself and I think that it is profoundly sad that the Minister is not prepared to move further on that. As I said, everyone is calling for this change: the industry wants it, consumer groups want it, Members on both sides of the House want it. It is very sad indeed that the Minister will not concede any ground.

I hope that another Minister will look at the problem again in the other place and I hope that that Minister can find another way forward. The Minister is determined not to give ground, so I am prepared to withdraw the amendment. I was glad to hear about the flexibility that already exists in respect of the transitional period. That provides some of the reassurance that we are seeking. I am sorry to end Report on a discordant note, but I have to say that the Minister has an opportunity to show that he has really listened to the demands that came out of the consultation. It is a matter of great sadness to all of us that he is not prepared to do so.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 48 — Entry to premises under warrant

Alan Reid (Liberal Democrat, Argyll and Bute)

I beg to move amendment No. 2, in page 41, line 19, leave out 'includes a reference to' and insert 'means'.

We move the amendment on the suggestion of the Law Society of Scotland. Its purpose is to ensure that, in Scotland, only a sheriff and not a justice of the peace will be entitled to grant the search warrants provided for in clause 48. I discussed the issues before tabling the amendment and discovered that the Law Society of Scotland takes the view that the powers to grant the warrants under the clause should extend in Scotland only to sheriffs.

A justice of the peace in Scotland, unlike in England and Wales, may not be legally qualified and so may be unfamiliar with the criteria for granting the warrants under clause 48. Limiting the power to sheriffs would also bring the Bill into line with recent legislation passed in this House. For example, sections 289 and 290 of the Proceeds of Crime Act 2002 relate to the approval of a judicial officer for searches under section 289. In Scotland, that power is limited to sheriffs whereas, under section 290(3)(a), in England and Wales the judicial officer is a justice of the peace.

Another example is the Crime (International Co-operation) Act 2003, section 17 of which provides that warrants may be granted by a justice of the peace in respect of England, Wales and Northern Ireland. In contrast, section 18 provides that, in Scotland, warrants may be granted only by a sheriff.

Again, section 156 of the Extradition Act 2003 provides that search and seizure warrants may be granted by a justice of the peace in England and Wales, but section 156(1) makes it clear that a sheriff grants them in Scotland. Finally, section 38 of the Asylum and Immigration (Treatment of Claimants Etc.) Act 2004 provides that, in Scotland, only a sheriff will be involved in granting warrants.

The Law Society of Scotland suggests that clause 48 of the Bill is similar to the four recent Acts to which I have referred, and that the appropriate authority in Scotland for the granting of warrants is the sheriff. Amendment No. 2, therefore, would maintain consistency in the law on search and seizure warrants in Scotland, and ensure that the warrants under clause 48 are granted only by officials who are legally qualified.

Gerry Sutcliffe (Labour, Bradford South)

I thank the hon. Member for Argyll and Bute (Mr. Reid) for the amendment, but I shall be consistent to the end and say that we intend to resist it.

The hon. Gentleman suggested that the amendment is intended to make the Act consistent with other legislation, such as the Extradition Act 2003, the Proceeds of Crime Act 2002 and the Asylum and Immigration (Treatment of Claimants Etc.) Act 2004. The Bill is concerned with the regulation of the affairs of businesses and consumer protection, and the provision under discussion covers entry into premises to obtain information in relation to fitness to hold a consumer credit licence. It is, therefore, not in the same league as the other legislation to which I and the hon. Gentleman have referred.

The Bill is consistent with the 1974 Act, which at section 162(3) provides that in Scotland justices of the peace and sheriffs may issue warrants to enter premises. The clause is also consistent with section 176 of the Financial Services and Markets Act 2000, section 297B of the Copyright, Designs and Patents Act 1988, section 111 of the Medicines Act 1968, and section 1 of the Breeding of Dogs Act 1990.

I can understand the concern expressed by the hon. Gentleman about warrants in cases where there is a considerable risk of criminal activity, imprisonment or danger to affected persons. However, the Bill does not fall into that category, and for that reason we have made it consistent with the 1974 Act and similar legislation such as the Financial Services and Markets Act 2000.

Furthermore, from a practical perspective, the amendment would place an additional burden on the sheriffs and mean that, in addition to their already considerable responsibilities, the OFT or trading standards officers would always need to obtain warrants from them. The Bill provides the regulator with the flexibility to obtain a warrant from a judicial officer without undue inconvenience.

I hope that that explanation will be sufficient for the hon. Gentleman to withdraw the amendment.

Alan Reid (Liberal Democrat, Argyll and Bute)

The Minister listed various Acts from several years ago, under which a justice of the peace as well as a sheriff is able to grant search and seizure warrants. I shall take careful note of what he said, and look at the provisions in those Acts. I shall also discuss the matter further with the Law Society of Scotland. We may return to the matter in another place, but I shall consider the Minister's response before taking it any further.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Order for Third Reading read.

Gerry Sutcliffe (Labour, Bradford South)

I beg to move, That the Bill be now read the Third time.

The House has considered the Bill at some length and on several occasions, and I am pleased with the consensus that we share on many of the issues. With the Bill, we are creating a modern framework for the regulation of consumer credit in the United Kingdom. We want a market that is fair and that rewards competitiveness, innovation, choice and enterprise, but we also want to stamp out the irresponsible and unfair lending practices that do so much to harm many consumers. I believe that the Bill fulfils those aims.

The Bill is the centrepiece of the most ambitious reform of consumer credit regulation since the early 1970s. The reform process involves not just legislative change, but a cross-Government strategy to tackle the problems of over-indebtedness in our society. Dealing with debt is more than just a consumer credit issue. Among other things, we are looking at why people get into debt problems and how to deal with the causes of those problems. We are funding more face-to-face debt advice for consumers, with £45 million over the next two years from the financial inclusion fund, and we are considering the best ways to tackle the pernicious problem of illegal money lending.

This long-awaited Bill has much support from consumer and industry groups and from hon. Members on both sides of the House. I thank hon. Members for contributing to our debates on the Bill. The involvement of all hon. Members who have explained their experiences has been invaluable in developing the Bill. I am grateful, in particular, to my hon. Friend the Member for North-West Leicestershire (David Taylor) and the hon. Member for Old Bexley and Sidcup (Derek Conway), who chaired the Committee so effectively, and to the hon. Members for Wealden (Charles Hendry) and for North Norfolk (Norman Lamb) and all the other hon. Members who served on the Standing Committee. Hon. Members' support for the Bill is reflected in its swift progress in this Session.

From our constituency postbags, we know of the many problems that people suffer because of debt. The debate on Second Reading gave us the chance to hear about many of those problems and the issues that affect business in developing an effective credit market. The Committee sittings offered us a chance to discuss with hon. Members concerns about specific aspects of the Bill.

In what I hope will be the final debate on the Bill in the House, I should like to concentrate on a number of issues that have been of interest to hon. Members. In Committee, the hon. Member for Wealden asked many pertinent questions about issues of great detail. As he said, I have written to him to answer those questions, and hon. Members can find copies of those answers in the Library. Although I understand where the hon. Gentleman's concerns are coming from, it is important to remember that the Bill will provide a framework for regulation. It will allow Parliament to impose general requirements that can be fleshed out in secondary legislation. So we will consult on that detail and can adapt it to changing circumstances.

Hon. Members will recall that I recently took great care to explain the unfair relationship provisions to the Committee. Those provisions must be considered in the context of the laws that deal with specific unfair practices and terms, as well as the way in which the courts will apply the law, and I will not get involved in that issue again today. We have considered extensive arguments from across the sector, and I believe that those provisions constitute the most effective means for consumers to obtain the redress through the courts, if they choose to take that route when resolving their dispute. The approach taken in the Bill is a solution that provides comprehensive and flexible protection for consumers, while allowing the industry to make credit available to all, not most, consumers and to continue to innovate.

Some hon. Members are concerned about the powers of the Office of Fair Trading. We must ask ourselves whether the body that enforces the Consumer Credit Act 1974 should have the power to investigate potential wrong-doing and whether consumers should be able to operate confidently in the market, safe in the knowledge that they are dealing with responsible lenders. The answer to both questions is yes. The Bill will provide a regime that ensures that there is fairness for consumers, that businesses are competitive and that the regulator has the powers that it needs to ensure that is so.

The OFT does not have an unfettered power to act. As a public body, it is has a responsibility to act reasonably and proportionately. In relation to its powers under the 1974 Act, it is subject to certain constraints and to an independent appeals tribunal. The powers that the Bill will give to the OFT are an essential foundation for a modern and effective consumer credit market. They are not a luxury. So if we enable the regulators to penalise misconduct, we must also enable consumers to resolve disputes for themselves. That involve introducing a system that is cheap, fair and easy to use. The alternative dispute resolution scheme in the Bill is all those things. It is informal. There is no need for hearings; a dispute can be dealt with in writing and issues can be cleared up over the phone. It can adapt to changes in the market quickly. Not only will it empower consumers to act with confidence in the market, it will also ensure stable competition across the credit sector.

In Committee, I noted some suggestions that clause 24 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. At that time, I said that if, on reflection, the clause was wrong in that respect we would table an amendment to clarify the position. Having considered the issue carefully, I have concluded that the definition of "debt administration" does not include holding on to a card at the point of sale when requested to do so, thus no amendment is necessary.

Members will be aware of the speed with which the Bill went through Committee, which is an indication of the broad degree of consensus that surrounds it. As it stands, the Bill fulfils everything we set out to do. However, the Government have always listened, and will continue to do so. We have listened to the concerns of Members about the timing of notices of sums in arrears for short-term credit, which we discussed earlier, and have now made an adjustment. In the context of the Bill, I have committed to look further at other issues.

I have restated the Government's commitment to look further at the issue of credit card cheques under secondary legislation, and the Department is working on that. Similarly, I have arranged, with my Front-Bench counterparts, to meet the credit card industry on 18 July, before the recess, to discuss how industry is addressing, through self-regulation, concerns about unsolicited increases in credit card limits.

The Bill enjoys wide support both in the House and among consumer and industry groups. Some aspects of the Bill give rise to concerns, and I have no doubt that they will be explored again in this debate and as the Bill goes through the other place. However, after more than four years' work, I believe that the Bill represents the foundation of a fair and competitive 21st-century consumer credit market. It enhances consumer rights and redress, while giving business confidence that it is competing in fair markets that are fit for the modern world. It encourages effective competition, driven by demanding and discerning consumers.

The Bill is important and I commend it to the House.

Charles Hendry (Conservative, Wealden)

I have been delighted to have the chance to lead for the Opposition on such an important Bill, which will help to bring consumer protection in the UK up to speed with the considerable changes that have taken place in the credit industry in the 30 years since the introduction of the Consumer Credit Act 1974.

The extent to which things have changed in terms of the size of the industry, the range of products on offer and the level of indebtedness among consumers shows how outdated that legislation has become and how imperative it is that new measures are introduced to respond to the situation. From the outset, we have made it clear that the Conservatives give the Bill broad support in achieving that goal and we are fully committed to action to root out loan sharks and bad practice, especially as it is the most vulnerable who are usually the hardest hit.

We have raised concerns and probed the Minister on a number of issues and problems along the way. That was part of the process of ensuring that we get things right this time and that the Bill can cope with the demands that will be placed on it by future changes in the credit industry. Had the Minister been prepared to say "yes" a few more times, the Bill would have been even better, but we shall leave that to our friends in another place.

I pay tribute to Members on both sides of the House for their expertise and for their determination to look after the interests of people preyed on by those who seek to exploit their financial circumstances and their lack of understanding of sharp lending practices. An understanding of the issues and the passion to drive them forward is a good combination and we have been lucky that Members have demonstrated that.

Many Members referred to tragic cases where individuals were caught up in a vicious cycle of worsening debt, often caused by unscrupulous lenders and unfair practices. That was an important part of our considerations and it is those lenders and practices that the Bill seeks to stamp out. At the same time, it is important that the Bill does not stifle the ability to operate of credit businesses that behave responsibly and whose services are often of great benefit to individuals and families, especially those on low incomes. We recognise that the overwhelming majority of credit providers act responsibly and the legislation, although it will inevitably affect them, is not targeted at them.

As the Minister said at the outset, debt of itself is not bad; it is irresponsible lending that causes the problem. By far one of the most important aspects of the Bill has been the new unfair relationship test, which replaces the old, impractical, extortionate credit test. We support the new test as a means of clamping down on loan sharks and unfair practices but, as the Minister is well aware, we are concerned about the lack of detail. As he knows, we have argued powerfully for that greater detail and we are disappointed that he has not given ground on it. Many of us believe that the Bill will be of less benefit to consumers as a result. It should be Parliament that gives the detail, not the courts, with all the time and huge costs that that will involve. It means that lawyers will benefit rather than borrowers.

Many still do not think that the Bill goes far enough. Even the Daily Mirror quoted just this week the chief executive of the Nationwide building society, who said:

"It is a great shame the opportunity was missed at the Committee stage to improve the Bill. While we support the broad thrust of the Bill, we still don't believe it goes far enough. We strongly urge MPs to grasp this last opportunity to make a real difference to consumers. Some practices, like credit card providers applying payments to the cheapest debt first, remain unfair and can only be to the detriment of the consumer. Any debt counsellor worth their salt would tell you to pay off your most expensive debt first."

There have been areas where we have tried to make those changes and I am disappointed that we did not succeed in persuading the Government to agree to them.

We also welcome the new systems of redress provided through the Financial Ombudsman Service. The Bill also provides expanded powers for the OFT as a means of improving regulation. Again, we agree that better regulation of licensees is a crucial step forward, but we remain concerned that the OFT's powers will go unchecked and that it will be judge and jury. We would like to see more control retained by Government and Parliament over its actions.

Another crucial dimension of the Bill is the increased level of information provided to consumers concerning their credit agreements. That, too, is an important step forward towards tipping the balance of power back towards consumers. They need to be granted an equal standing and to have access to appropriate information to make informed choices over their credit decisions. It is also a vital means of helping consumers avoid getting into trouble with their agreements. I am pleased that the Minister has been working with us to ensure success in this respect.

I join the Minister in paying tribute to our two Chairmen, the hon. Member for North-West Leicestershire (David Taylor) and my hon. Friend the Member for Old Bexley and Sidcup (Derek Conway), for the way in which they kept us in order during debates. I pay tribute to hon. Members on both sides of the House who have spoken with such passion and commitment on what is an important area for many of our constituents. In particular I pay tribute to my hon. Friends the Members for Hemel Hempstead (Mike Penning), for Wantage (Mr. Vaizey) and for Hornchurch (James Brokenshire), who as new Members have shown tremendous commitment, understanding and expertise. I do not restrict my comments to Conservative Members. This has been an extremely valuable process on all sides, with many years of expertise brought to bear.

We have had a wide-ranging debate. We have focused in particular on issues, such as loan sharks, but we have also discussed a helicopter clause, so that when the Prime Minister's friends need to buy a new helicopter or yacht at short notice, they can be given greater assistance in doing so. We have made progress on those issues. Naturally, I pay tribute to the Minister who has been courteous and charming throughout. He is the natural heir to General de Gaulle and Mrs. Thatcher in being able to say no so forcefully and so often, but I wonder whether perhaps he should move in his next life to the Department for Transport because his sense of direction is remarkable. He always knows where we are coming from and understands where we are heading in every contribution. As I said earlier, it is just a shame he would not help us get there.

I thank the officials at the DTI and in the House. Departmental officials must have dreaded yet another list of Hendry questions. No doubt forests were torn down, gallons of ink were expended and writers' cramp inflicted simply to give the Minister the answer as quickly as possible. They have been extraordinarily helpful, too, in providing written replies subsequently. I was particularly struck by the one about my challenge to the Minister to find some fees which had gone down under this Government. They produced an extensive list of Companies House charges. However, I win on points. The Directors Register by e-mail has indeed gone down from £3 to £2.50 but things like the full snapshot of the Directors Register has increased from £60,000 to £120,000. The list shows that the general drive is upward, even if there are some examples of fees that have come down. In any case, the officials have provided a great service, both in Committee and subsequently.

The Minister has made a tremendous effort to bring the Bill back to the House so quickly, and we all pay tribute to him for doing so. He should be praised for that, and for consistently dealing with our amendments with great courtesy and good humour. I am pleased with the level of consensus that we have struck throughout the Bill's progress and, although we have not always been able to agree on the detail, we all want to see the same end product—more protection for consumers, better systems of redress, more access to information and better regulation.

I regret that the Government rejected our proposals on matters such as credit card checks and controlling unsolicited increases in credit limits. I sense that most hon. Members supported us and we will look back and regret that we were not more effective. I am also disappointed that some issues were ruled out by the Chair— although of course we respect that judgment—such as the amendment on the standardisation of interest rate calculations, which is a matter of tremendous importance.

I remain concerned by the complacency about the growing level of debt that we face in this country. The Minister was able to point to the rising value of property and the huge bedrock of capital that supports that debt, but we are seeing a worrying growth in credit card arrears, bad debts, mortgage repossessions and bankruptcies. We need be aware that the problem could be getting worse.

We have, however, gone a substantial way to reaching the aims that we set out to achieve and we all look forward to monitoring the Bill's progress. To end on a conciliatory note, I congratulate the Minister once again on his personal commitment to ensuring that the Bill becomes law.

Norman Lamb (Liberal Democrat, North Norfolk)

I join the hon. Member for Wealden (Charles Hendry) in thanking the Minister for the approach that he has taken throughout. He has been willing to discuss and debate, and to be constructive. We are slightly frustrated that he has not been able to go along with some of our constructive amendments to improve the Bill, but the whole debate on the Bill has been conducted in a civilised way. To that extent, I pay tribute to everybody who has contributed to that debate. It is a blessed relief sometimes to be able to discuss issues constructively, without seeking to score points at every possible opportunity. The Minister played a big part in that and I thank him for it.

I also wish to pay tribute to the officials who assisted the Committee and the Minister throughout the process. It was painful having to go through it all again just a few months after the last time, but I thank them for their hard work. I also join the hon. Member for Wealden in thanking the Chairmen of the Committee, the hon. Members for North-West Leicestershire (David Taylor) and for Old Bexley and Sidcup (Derek Conway).

The Bill follows an explosion in the availability of credit since the original legislation was passed through Parliament—it took some time to come into force—back in 1974. It is worth saying again that the availability of credit is a good thing. We all need credit, and it is often those on the lowest incomes who have the greatest need for it. It would be wholly wrong to adopt a sort of paternalistic approach and deny people access to credit when they need it. The whole issue comes down to the case for responsible lending, which should be combined with responsibility on the part of the individual borrower. However, so many people are vulnerable, for one reason or another—be it mental health, age or just the pressures of life—so the industry bears a great obligation to act responsibly. The Bill, however, sets a modern framework within which the industry can operate.

The Bill is welcome, but it is long overdue. I pay tribute to the Treasury Committee, on which I served, for pushing the Department of Trade and Industry to introduce a Bill in Parliament. Such as measure was debated for a long time. The Minister said that there had been four years of hard work, but at one stage it seemed as if that would become five or six years. The Treasury Committee played an important part in pushing the Department in the right direction.

Gerry Sutcliffe (Labour, Bradford South)

indicated assent.

Norman Lamb (Liberal Democrat, North Norfolk)

I am pleased that the Minister agrees.

I very much hope that the Treasury Committee will continue to monitor the industry, because although there has been genuine progress and the Bill modernises the legislative framework, there is still a long way to go before the industry always behaves responsibly and consumers avoid getting into serious difficulty. There are some areas where progress still needs to be made. First, there are still unacceptable practices. I hope that the unfairness test will address some of our concerns, but pernicious charges are often imposed, as I have experienced myself. Payment may be due to go into an account but, for some reason, it does not. Consequently, the cheques that one writes are not covered. One might have to pay a charge of £30 a cheque, so if one has written five cheques one faces costs of £150. The equivalent interest rate would be a substantial one, and many people get into serious difficulty as a result of those exorbitant charges. That is the subject of an investigation, and I hope that the outcome will be a more competitive market. Remarkably, all the companies manage to charge roughly the same amount for going over the credit limit or for failing to pay on time.

Credit card cheques were mentioned by the Minister, and are a serious concern, as they tempt people to use their credit card inappropriately. I remember when Matt Barrett, the chairman of Barclays, had his wonderful Ratner moment in the Treasury Committee, but he was quite right to say that he would not advise his son to use his credit card as a means of borrowing over time. He would advise him to use it as a means of payment. However, sending people credit card cheques so that they use their credit cards to borrow on a long-term basis is wholly inappropriate. Most people do not realise that interest applies immediately—it is therefore different from the interest on credit card purchases—so they are not aware of the problems that they will experience as a result of those charges. The Minister has undertaken to take a further look at that. I hope that he does so and produces an effective solution to tackle the problem. We may be able to discuss that at our joint meeting with the banks which, again, I welcome. The banking code is a voluntary means to address many of those concerns and avoids the problem of over-prescriptive regulation. I therefore urge the industry to respond positively.

The hon. Member for Hemel Hempstead (Mike Penning) raised the transfer of credit balances, which is another serious concern. People who have transferred a debt of £5,000 with nil interest for a year go out and make some purchases with their card. They think that they are paying off the purchases but, in fact, they are paying off the transfer debt at nil interest, and are paying interest on their purchases. Again, that is the sort of problem that is most appropriately dealt with through the banking code or by voluntary agreement, but the industry must respond. If it fails to respond, I hope that the Treasury Committee and the Department will be on its back demanding a positive response.

The second issue of principle that still has not been addressed and which the Bill fails to address is that for a genuinely competitive market, one needs informed consumers. On the cost of borrowing, we do not have informed consumers. Although we have sorted out the APR problem, we have not sorted out the problem of the calculation of interest rates. It is a pity that the amendment tabled by the hon. Member for Wealden was not selected for debate today. I understand how these things must be done, but that is a crucial issue. When there are 10 different means of calculating interest, no consumer will be able to compare one card with another. There will not be transparency until that problem is resolved. I hope that the Minister finds a way of addressing the problem and that we can discuss it directly with the industry.

The third issue is data sharing, the subject of a new clause tabled by my hon. Friend the Member for Argyll and Bute (Mr. Reid) and me today. Because it was not selected, the issue again remains unresolved. As has been said by others, the Bill is the golden opportunity to address these problems. While the Bill continues to progress through the other place, it is a time to put pressure on the industry to get its act together. However, as the industry says, it needs a legislative change in order for it to be able to share data under the historic agreements introduced before the implementation of the Data Protection Act 1998. It is a crucial issue, which the Government need to address.

The fourth issue is financial education. The changes will have little impact unless we increase the level of financial education generally in society. There has been an explosion in the availability of credit and credit products. We have not had a commensurate revolution in financial education. Schools and the Department for Education and Skills need to engage in that. The Minister can use his authority to engage with others to bring about real change.

The fifth issue is the availability of advice and assistance. In parts of the country there is access to a remarkably good service, often provided by citizens advice bureaux and other advice agencies, but there are gaps in the network that need to be filled. Our party has argued that the industry ought to contribute to a common fund. At present there are all sorts of different arrangements whereby, perhaps for competitive advantage, companies enter agreements with advice agencies to offer support and advice when needed. Unless that is done comprehensively, gaps will remain.

I had a case in my constituency, involving the Holt citizens advice bureau and two other bureaux in other hon. Members' constituencies. They have had their three-year lottery grant. Like so many similar organisations, they have provided an enormous amount of advice during that period. Some 40 per cent. of the advice that is given relates to debt. That is in a market town which many people would regard as reasonably prosperous, but there is hidden deprivation and lack of financial security in every part of the country.

What happens when that three years comes to an end, as it did earlier this year? An application for renewal was refused, so the funding came to an end. There is a cliff face. I am constantly frustrated by the availability of grants from central Government and from other agencies which have a defined life period, often helping to provide an essential service, and when it comes to an end the whole scheme collapses. That is not good public policy. Advice is no longer available in that part of north Norfolk and, although I have written to the Association for Payment Clearing Services and the British Bankers Association and asked them to help, the industry as a whole should ensure that a full network of advice is in place across the country, which would be a major advance. Again, I urge the Minister to engage with the industry on that front.

Gerry Sutcliffe (Labour, Bradford South)

The hon. Gentleman will be aware of the new consumer direct helpline, and his constituents can ring 08454 040506 to obtain advice. He is right that the network needs to be developed, but I know that he welcomes the £45 million contribution from the Government to financial inclusion funds dealing with education and financial support.

Norman Lamb (Liberal Democrat, North Norfolk)

I welcome that contribution, but my point is that the industry should play its part and that we must urge them to make it happen.

We have not addressed the issue of an interest rate cap today, but it was passionately debated on Second Reading and in Committee—Rev. Paul Nicolson is a particularly effective advocate for the cause. I have not been persuaded of the case, and my position is based on research commissioned by the DTI, which has been heavily criticised for the lack of evidence. The Minister should ensure that more authoritative and deeper research is carried out to compare jurisdictions with interest rate caps with other jurisdictions.

None of us feels comfortable about the interest rates charged by some doorstep lenders and others, but the providers of mainstream credit often get people into difficulty because of the combination of charges and the lack of data sharing. The interest rates issue specifically relates to the most impoverished in our society, because the poorest members of society are paying the highest rates of interest. The Department should monitor the matter closely and commission further research so that we achieve a greater understanding and try to reach a consensus about the evidence before drawing further conclusions.

The Minister is mistaken about the unfairness test. There is serious concern about a lack of guidance for both the lender and the borrower on what "unfairness" means in that particular context. The matter comes down to the whether Parliament or an agency that is accountable to Parliament should decide, or whether a court should decide. The Minister has chosen the option of the court deciding, so we will be left with an uncertain wait, which may last for years, for an unaccountable court to provide the guidelines on how to interpret unfairness. That arrangement is unsatisfactory, and, in a sense, Parliament has abdicated its responsibility to provide clear legislation that lets everyone know where they stand.

I have raised a number of concerns and issues that are not dealt with satisfactorily in the Bill, for understandable reasons. However, those issues remain unresolved, and the Minister and his Department, together with others such as the Select Committee, must ensure that we make further progress to make the industry act responsibly for the benefit of consumers.

James Brokenshire (Conservative, Hornchurch)

I welcome the Bill, which introduces a reform that is long overdue and reflects changes in practice. The credit market has changed enormously since the Consumer Credit Act 1974 was introduced. It is pleasing that the Government have dealt with the matter so soon in this Parliament. It is important to provide greater protections to those who are seeking credit, and that is a key element of what the Bill tries to do in seeking to protect the most vulnerable members of our communities.

I thank the Minister for the way in which he has handled interventions and awkward questions from me and from various other Members, and for his patience with us as new Members, which has been much appreciated.

It will probably come as no surprise to the Minister that I am left a little disappointed by the end result of our deliberations. As he knows, I am a lawyer by training, which means that I am picky and like Bills to be drafted in a particular way. Like other lawyers, I look for certainty in terms of the way in which legislation is interpreted. I fear that certain parts of the Bill still have elements of vagueness, particularly in relation to the unfairness test. We have discussed that on Second Reading, in Committee and today on Report, so I do not intend to go over old ground—the Minister is clearly familiar with the arguments.

The Minister proffered the olive branch of the Office of Fair Trading guidance, but that has certain limitations, as the OFT itself recognises in the guidance note that it has already produced. That says that it is ultimately for the courts to decide what happens in a case of unfairness and whether something is to be regarded as unfair practice, although it may give some pointers. I hope that that will help in providing the level of certainty that Members on both sides of the House are seeking.

On one level I can understand why one can advance the argument of keeping a general approach on the unfairness test: it is in order to say to lenders, "We've done it this way deliberately to keep you on your toes and on the right side of the line, and you've got to think about it very carefully." My only fear is that that could operate in the opposite way. As regards access to justice, the lack of certainty makes it difficult to bring a legal case or to force a lender who has not been abiding by the rules to reach an early settlement. There is an overlap with the OFT and the financial penalties for inappropriate practice, as well as the powers under part 8 of the Enterprise Act 2002. Again, that has certain limitations, as there has to be a sustained practice that can be regarded as unfair across the whole industry.

It is possible to look at the right to impose sanctions in a slightly different way. The OFT says in its notes on imposing financial penalties:

"Where . . . a licence holder voluntarily provides compensation to consumers, this can be taken into account by the OFT when considering the appropriate amount of penalty to be imposed. This would exclude situations where the consumer involved had already approached the courts or the Financial Ombudsman Service, because in this context that would not be a voluntary action by the licensee."

I acknowledge that that signifies an intent to try to force lenders to examine their actions carefully. If somebody approached the courts and the ombudsman's service, and the lender recognised that he had not acted appropriately, I would hope that the OFT has some flexibility to take that into consideration. I hope that matters are not so rigid that, simply because somebody started the process of going to the ombudsman or going through the courts, the OFT could not take such recognition into account, as the language in the guidance note suggests. We all agree that we want to avoid going to the courts if possible. Any mechanism for encouraging that must be a good thing.

Many have spoken about denying credit and the fact that those on low incomes find it the most difficult to obtain credit. There has been a great expansion in the UK credit market and more people than ever have the capacity and opportunity to borrow. However, access to credit remains severely constrained and limited for those on insecure or low incomes.

The study that the Joseph Rowntree Foundation published in February is instructive. It states:

"People on low incomes have a higher risk of default than those who are better off because their circumstances are more likely to change. They also tend to want more weekly cash repayments.

Low-income credit users also want to borrow relatively small amounts . . . The costs of lending are largely fixed, so they tend to be high in relation to the amounts borrowed."

The final point is the most telling:

"Left to its own devices, the commercial market will continue to move away from lending to the poorest people. Many of the proposals to tackle high-cost lending are likely to accelerate this trend and leave poor people with even less choice and higher costs."

We are not trying to prevent people from having access to credit but to promote responsible lending.

I hope that the Government will continue to monitor the measure's effect. If they pick up trends of the availability of credit to those on low incomes and people who have uncertainties in their lives being taken away, I hope that they will ensure that the industry will not use the changes to say, "This is far too complicated. We'll pull out of that market." I am sure that the Under-Secretary shares those views. The credit industry must be regulated properly to ensure that it provides fair credit, but that must not result in financial facilities being denied to those on low incomes.

The last thing any of us wants is to give succour or encouragement to those who abuse people's circumstances—rogue lenders who try to prey on and take advantage of those who are vulnerable and perhaps less able to make credit decisions themselves, and use unsavoury, aggressive and sometimes violent tactics to ensure that money is repaid.

I welcome the Bill. It is a step in the right direction but I hope that the Government will continue to listen, as the Minister has done throughout the process, and continue to monitor the measure's impact to ensure that it has the desired effect.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

I pay tribute to the Under-Secretary, who, unless there is another election in the next few months, is the first Minister for 30 years to get a consumer credit measure on the statute book. Clearly, it fulfils an important need. Having said that, there will be missed opportunities in any Bill—the Minister probably expected me to say that; he could probably write my speech and I could write his response—and this one is no exception.

I refer in particular to the interest rate cap that the hon. Member for North Norfolk (Norman Lamb) mentioned. The Bill provides for a significant enhancement of indirect consumer protection as a result of an easier recourse to the law, either through the courts or through an alternative disputes procedure. A more explicit definition in the Bill of the unfairness test would have provided more direct and immediate protection, but we do not have that at the moment. I would go further and argue that we need completely to stamp out exploitative lending in the sub-prime market through the operation of an interest rate ceiling. Such ceilings exist in most countries, including the majority of European countries, and in many states in the USA, Australia and Canada. The South African sister Department to the DTI has included in draft legislation an enabling clause similar to the one that I proposed in the previous Bill before the election, and in the past few weeks, the Polish lower House has supported legislation to introduce an interest rate cap. Surely all those countries cannot be wrong.

Credit is to be supported, but there is a difference between credit and what used to be called usury. Credit is an arrangement that benefits both the lender and the borrower. The lender receives the interest payments, but the borrower also benefits because the arrangement enables them to smooth out fluctuations in their income. Usury offers no long-term benefit to the borrower, however, and the lender knows that at the time of the transaction. Surely such arrangements should be eliminated, and an interest rate ceiling would appear, from the research that the Minister and I have seen, to be a successful way of achieving that.

The Minister said on Second Reading that he was prepared to look again at the independent research on interest rate capping. I know that he has received a briefing on the issue from Debt on our Doorstep. It is an extensive literature review that goes back over 40 years of experience in interest rate ceilings. It goes into much more detail than the Policis research, which, as the hon. Member for North Norfolk said, is highly flawed. Policis does not appear to have interviewed many of the leading academic commentators worldwide. It claims to have done a full literature review, but there was no extensive bibliography in the report. I know that Debt on our Doorstep has asked to see it. That research seems flawed to me.

I echo the comments made by the hon. Member for North Norfolk. Could we have a timetable for the review that the Minister has promised? Will the Government commission further independent research, because of the doubts that are widely shared about the robustness of the Policis research? After all, there is a template that the Department could use. It is the Treasury's recent consultation document on the credit union interest rate cap. The Government have imposed an interest rate cap on the credit unions. By law, they cannot charge more than 1 per cent. a month. If it makes sense to place an interest rate cap on credit unions, which by their very nature are beneficent in their attitude towards their borrowers, why is it not worth looking again at putting a interest rate cap on lenders that are slightly less beneficent in their approach? Will the Minister therefore consider that?

In relation to the comments of the hon. Member for Hornchurch (James Brokenshire), as I have never said that an interest rate cap is a one-size-fits-all solution, will the Minister say what the Government plan to do in terms of their financial inclusion agenda, beyond the financial inclusion fund? Are there any proposals, for instance, to examine the kind of statutory requirements that the Governments of France and Germany place on mainstream lending institutions in relation to providing banking, including overdraft facilities, under which a certain proportion of their customer base must be low-income households? In commissioning further research, will the Government examine not just interest rate caps but spreading financial inclusion through mainstream providers?

Ed Vaizey (Conservative, Wantage)

Like everyone else in the Chamber, I want to say how much I welcome the new Bill and wish it well on its way to the other place. As a new Member, I have thoroughly enjoyed the experience of participating on Second Reading, Report and Third Reading but most of all in Committee. It was a tribute to the proceedings of Parliament that we were able to go through the Bill in such detail, clause by clause, with such courtesy across the Committee Room. I thank the Minister for the way in which he and his officials have handled the Bill, and I also thank the Liberal Democrats. Most of all, however, I thank my hon. Friend the Member for Wealden (Charles Hendry) who was an extremely effective Opposition spokesman, putting forward detailed and necessary amendments and arguing his case extremely forcefully.

I want to return to only three issues, some of which I raised on Second Reading. As the Minister is now well aware, I am obsessed, rather like a dog with a bone, with the unfair relationship test. It strikes me as extraordinary that the Department has not in any way sought to include guidance on what an unfair relationship means. Were such guidance provided, perhaps in the Bill or by regulation, that would be an enormous benefit.

To begin with, guidance would help the industry before the Bill even came into effect. The industry would know how to redesign if necessary any products that were on the market, and how to adapt easily and quickly to the forthcoming regime. Above all, however, guidance would help the consumer, who stands alone when he or she makes the bargain, and who has no resources to turn to expert advice if the bargain goes wrong. It would help the consumer if he or she were able to turn easily to guidance on what might or might not be unfair, rather than, as I had to do, ferret around in "Chitty on Contracts", using my dusty and ancient legal experience, to work out that there might or might not be a connection with the terms in consumer credit regulations. Guidance would also help the industry—it would put off ambulance chasers and unscrupulous individuals seeking to try it on because they were unhappy with the bargain that they had made—and the ombudsman.

There are many other measures in the Bill, however, that one can welcome, not least the creation of an ombudsman in this area, which is long overdue, as well as the role for the Office of Fair Trading, although I take on board the critique put forward by my hon. Friend the Member for Wealden about the excessive powers.

I have also listened with interest to the wider debate, which we did not necessarily have in Committee, particularly the debate on an interest rate cap. I have to say that I am increasingly attracted to that idea. Arguably a Conservative Member's instinct should be to oppose any regulation, especially regulation that "interferes with the free market", but I think that too often members of our party shy away from active regulation and intervention that can help the individual, the consumer and the vulnerable person, because we make obeisance at the altar of the free market.

When we look at the financial services industry, we see an industry that is selling a product. Any other industry that sells products to consumers is regulated, and indeed the financial services industry is closely regulated. But no one would argue that we should get rid of motorway speed limits because they cut off access to high-speed, thrilling drives for Ferrari drivers, and I find it odd that we should wish not to cap interest rates because that would cut off access to vulnerable consumers for unscrupulous lenders. As for the argument that we are somehow doing vulnerable consumers a disservice by cutting them off from excessive rates of interest, I find that bizarre. It is precisely because those consumers are vulnerable in a host of ways, not just because of their particular circumstances at the time but perhaps because of their educational background, that they are targeted.

As the hon. Member for Carmarthen, East and Dinefwr (Adam Price) pointed out, the Government are not shy of imposing consumer-style regulation on financial products, not just credit agreements but the stakeholder pension when it was introduced. As I said on Second Reading, that also applies to CAT—charges access terms—standards.

Norman Lamb (Liberal Democrat, North Norfolk)

I do not know whether the hon. Gentleman agrees with me, but I think that the picture is unclear. Research commissioned by the Department of Trade and Industry suggested that there would be consequences that none of us would want, and that people could be pushed into the clutches of loan sharks. I have no idea what the truth is. Does the hon. Gentleman agree that the Department should commission more authoritative research, so that we could at least try to agree about the evidence?

Ed Vaizey (Conservative, Wantage)

I agree with the hon. Gentleman, and with the hon. Member for Carmarthen, East and Dinefwr, that the Government should review the position. There is evidence that an interest rate cap has worked on the continent and in America, and I believe that we should consider it here. I urge my hon. Friend the Member for Wealden to include it in the Conservative party manifesto for the next general election, because I think that the policy will prove to be extremely attractive on the doorstep.

The intervention from the hon. Member for North Norfolk (Norman Lamb) brings me to my third and final point. I agree with his emphasis on personal financial education. As the Minister will recall, I raised the subject on Second Reading. I raise it now with your indulgence, Mr. Deputy Speaker, as it is not specifically within the frame of the Bill.

I find it extremely odd that, in the 21st century, it is possible to go to school and receive only the merest smattering of education. Pupils may learn algebra, which they will never use again, or a foreign language, which they will rarely use again. I would go so far as to say that 99 per cent. of what I learned at school I never use. It would be a great idea to include personal financial education, not merely as a fringe activity but as a core part of our education system. School children should be able to take GCSEs and A-levels in the subject, to educate themselves in the wily ways of financial services.

Let me end by saying how grateful I am for the opportunity to participate, as a new Member, in debates on the Bill. I wish it well as it makes its stately progress across Central Lobby to the other place.

Gerry Sutcliffe (Labour, Bradford South)

I will not speak for long—[Laughter.] A certain hon. Gentleman is obviously pleased to hear it. Many interesting issues have been raised, and I stand here feeling some satisfaction, in that the Bill has reached Third Reading and will now proceed to the other place. As a result, in the near future there will be protection for a wide range of consumers who seek credit. We have focused on people on low incomes, but we have also agreed that credit is a useful tool when handled properly.

I realise that the question of an interest rate cap is central to this debate. Our research on this issue has been criticised, but I should point out that the research undertaken by Policis focused on those on low and very low incomes primarily because they are the most vulnerable groups. Much of the existing data have not been separated to show the position of those on low incomes. However, as I have said all along, I am genuinely prepared to examine the information that comes in. In answer to the point raised by the hon. Member for Hornchurch (James Brokenshire), we will review the legislation within two to three years and examine the various issues arising.

Norman Lamb (Liberal Democrat, North Norfolk)

Will the Minister do more than look at the information that comes in, as he describes it, and commission more authoritative research?

Gerry Sutcliffe (Labour, Bradford South)

I shall not give an answer to that today. I want first to be able to examine the Bill's impact and the way in which the unfair relationship test, about which there has been some disagreement, works.

We will not be complacent, however, and we must remember that this Bill must be seen not in isolation, but in the context of the various cross-departmental initiatives on financial inclusion. The hon. Member for Carmarthen, East and Dinefwr (Adam Price) discussed developing credit unions, and the hon. Member for Wantage (Mr. Vaizey) raised the issue of financial education, which will be provided. We must not only increase the money available in the financial inclusion fund, but engage in a cross-departmental effort to examine how best to provide financial education at an early stage in people's lives.

I pay tribute to the work of the various bodies involved in this process, such as consumer and industry groups and the newspapers. The hon. Member for Wealden (Charles Hendry) mentioned the role of the Daily Mirror in particular, but other newspapers have also launched campaigns to protect consumers, which I welcome. They will not let us get away with being complacent. As things develop, we must ensure that consumer protection is in place, but we should not be frightened of also ensuring that responsible lenders are able to grow their business.

We are going to have to deal with the problem of loan sharks very soon, and with that in mind we are running two pilot projects, in Birmingham and in Glasgow. The Birmingham project is working very well. The issues being dealt with are very depressing. These loan sharks lend huge sums, and there are other, associated evils. For example, loan sharks target single mothers living in high-rise flats because lenders do not allow their staff to visit such flats; as a result, such single mothers cannot obtain any other kind of credit. If they happen to miss a few payments, the loan sharks encourage them into prostitution or drugs. We are determined to tackle this problem, and we must ensure that those at the low end of the income scale are not preyed upon by loan sharks.

There are many other issues that we could talk about this afternoon, but I want to stress that the Bill is a co-ordinated attempt to achieve consensus. The political consensus that has developed is important. As the hon. Member for Wantage said, anyone who has followed our proceedings has seen Parliament at its best. We are trying to improve constituents' lives by providing protection for consumers, while at the same time being fair to business.

I am pleased that the Bill has managed to get through. If it passes through the other place, it will be the first of this Session to receive Royal Assent, which is a tribute to all involved. I also pay tribute to the officials in the DTI who supported me and to House officials who have ensured that the Bill has had a safe passage.

Question put and agreed to.

Bill accordingly read the Third time, and passed.