Business and Planning Bill

Baroness Altmann Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Monday 13th July 2020 Lords Chamber

[Baroness Bowles of Berkhamsted [V]]

My Lords, I have two amendments in this group and thank the noble Lord, Lord Stevenson, the noble Baroness, Lady Altmann, and my noble friend Lord German for their support. These amendments follow up on points I made at Second Reading about whether it was right to suspend all of Section 140B of the Consumer Credit Act or, as my Amendment 46 suggests, only where it is related to affordability and terms required by the Bounce Back Loans Scheme.

In this context it is important to note that neither Section 140B on court remedies nor Section 140A defining the scope of an unfair relationship is limited to, or specifically mentions, matters of affordability. The court can take all matters into consideration and, if truth be told, there should be no need for any waiving of the section as the government terms for bounce-back loans would be taken into consideration.

We know that the banks want belt-and-braces protection and I would give them that on affordability, but it is wholly wrong to remove every protection, giving banks belt and braces while stripping small businesses naked against other overbearing activity; charges and default procedures immediately spring to mind.

The Minister explained in reply at Second Reading—I can agree with this—that the Government have put conditions to the loan that are intended to ensure it is sustainable, limiting to 25% of turnover with fixed, affordable interest as well as the 100% guarantee. I also agree that the businesses need to take responsibility. Despite that, defaults will inevitably happen because it is unpredictable what the effects of coronavirus will be.

The question then becomes: what governs subsequent behaviour? On the one hand—I am sure this worries the Treasury—what incentives are there for banks to try very hard to get repayment, especially if they get too tough and people like me make a fuss and cause them reputational harm? Is it not easier for them to just rely on the government guarantee? On the other hand, the relationship between a lender—or a lender pressed by government—and a small debtor is inherently one of the powerful against the weak and can be abused.

In the Commons, Kevin Hollinrake said that as co-chair of the All-Party Group on Fair Business Banking he supported

“the suspension of the Consumer Credit Act 1974 with regard to bounce-back loans due to affordability issues,”

and asked:

“but does the Secretary of State agree that it is vital that lenders still comply with the requirement to treat customers fairly in the collection process or if there are debt issues later on and that forbearance is applied?”

The Business Secretary replied:

“my hon. Friend raises an incredibly important point. Yes, forbearance is part of these measures, and we would expect that very much to apply.”—[Official Report, Commons, 29/6/20; col. 52.]

At Second Reading last week the noble Lord the Minister said that the Government were convening workshops with lenders to discuss how they will seek to recover loans where feasible, but none of that guarantees or restrains what lenders will do.

Although the lender cannot require security over personal property, security over the assets of the business is still possible, which may well be the essential tools of the trade, so carefully put out of reach during moratorium in the recent insolvency Act. What is to stop that at the first sign of default? As noble Lords have frequently reminded the Government, it is not the friendly local bank manager who deals with defaults; they go to the hard-nosed recovery units, where even the existing consumer protections seem to have held little sway, because small businesses cannot afford to take the matter to court and the FCA is reluctant to intervene in contracts, one-sided though they may be.

None of this, however, justifies removal of the last-stand method of redress of the courts for matters that are an improper use of unequal power: no protection against gouging behaviour over charges as soon as there is any default; no protection for excessive demands over security of a business’s assets; no preventing the use of the bounce-back loan default to trigger other eventualities, perhaps to force unfavourable loans or restructuring, which might then include instances where personal guarantees have been given. All those possible actions, of types seen in the past, seem to be outside the spirit of the bounce-back loans and the assurance given by the Business Secretary in the Commons, but how will they be prevented or rectified?

Disapplying the court remedy is removing a safety net available in all other circumstances. Why should it not apply here? Further, it seems that corresponding FCA discipline may also be disapplied, and other consumer credit matters have already been disapplied through statutory instruments. Returning to the matter of the workshops with lenders, will the outcome of those workshops be shared with Members of this House or the public?

It is not that I am necessarily expecting the worst behaviour, but the law must be able to address the worst. Therefore, I have put forward two amendments. Amendment 46 is exactly what Kevin Hollinrake said, and states that the disapplication should apply only

“insofar as such an order would relate to affordability or terms of the credit agreement required by the Bounce Back Loan Scheme.”

Amendment 47 says that:

“Repayment, rearrangement, fees or other new requirements may not be imposed on Bounce Back Loans in consequence of terms in or trigger events in other financial agreements with the lender.”


This is to prevent the kind of reach-through that I have mentioned previously.

Finally, I must mention that I understand Amendment 48, in the name of the noble Lord, Lord Stevenson, and his anxiety to get at the statistics of bounce-back loans. I add that, in a year’s time, I will start to become anxious to have statistics on repayments, defaults and forbearance. I beg to move.

[Baroness Altmann (Con) [V]]

My Lords, I support Amendment 46, to which I have added my name, and congratulate the noble Baroness, Lady Bowles, on her vigilance with respect to small businesses that are in a weakened financial state due to the Covid-19 restrictions; and her efforts to assist them in facing the large banks that may be trying to recover bounce-back loans, or penalise struggling firms in ways that were never intended by emergency legislation. I also congratulate the Government on their bounce-back loans initiative. However, I believe that this amendment is necessary to potentially address the asymmetry of power, which is a significant potential threat to the future of many hard-hit SMEs.

SMEs could face draconian recovery tactics, such as were employed by the infamous Global Recovery Group after the 2008 financial crisis, whether in the form of excessive fees or the taking over of business assets. The noble Baroness, Lady Bowles, is right that a court remedy is essential, not least to avoid giving a potential carte blanche to some of the less scrupulous bank executives.

Many banks wish to behave well, but this amendment is aimed at those who may not do so and is trying to anticipate and deter some of the practices that we have seen before. Bounce-bank loans are surely intended to help as many businesses as possible bounce bank, especially SMEs, rather than to offer a heads-you-win, tails-you-lose opportunity to lenders at the expense of business owners who were forced by the Government to suspend or curtail their business’s activity.

I also support the aims of Amendments 47 and 48 and hope that the Minister will listen carefully and agree to bring back amendments on Report that address this potential issue.

[Lord German [V]]

My Lords, I, too, support these amendments and have added my name to them. Section 140A of the Consumer Credit Act provides protections for borrowers in loans except where they are regulated mortgages or home purchase matters. The Act protects borrowers in connection with any credit agreement, except those related to home purchases, through court orders which may be awarded where the lender has gone beyond the terms of an agreement, applied the rules inappropriately or otherwise behaved inappropriately. The powers of the courts in this Act are drawn very widely and are designed to ensure that loopholes and lacunas which lenders might use to secure repayment have been covered off.

In their amendments to that Act in this Bill, the Government seek to remove the protections provided by the Consumer Credit Act where bounce-back loans have been provided. The Act provides broad powers to the court to bring lenders into line, including requiring lenders to repay moneys to a borrower, stopping lenders undertaking actions against the borrower in relation to their loan, requiring lenders to set aside any measures the court thinks are inappropriate and enforcing changes on the lender. This Bill, if unamended, would remove those protections in their entirety, except for in two circumstances.

Amendment 46, in the name of my noble friend Lady Bowles, limits the powers of these protections to the strict terms of the bounce-back loan and removes lenders’ ability to weave in other conditions, which the borrower has in respect of other loans and credit facilities, into the bounce-back loan arrangement. Adding such additional conditions is precisely the sort of hurdle which the Consumer Credit Act is designed to avoid—for example, using the terms of an existing loan with the bank to apply to the bounce-back loan, such as the level of security needed, the number of signatories required, the applicability of the borrower and so on. My noble friend has outlined the consequences of enacting this clause in the Business and Planning Bill and, in supporting her, I wish in particular to emphasise the need for Amendment 47.

At Second Reading, I spoke of the problems that many small and medium-sized enterprises are having in securing bounce-back loans with major lenders where hurdles which are not part of the bounce-back scheme are being placed in the way of companies seeking a loan. These loans may not save every company from going out of businesses, but they are certainly going to be a lifeline for some, and let us hope many.

Add to this the difficulties which challenger banks have in being able to find the cash to provide bounce-back loans, in part caused by the reluctance of high street banks to funnel funds through them at the Bank of England’s near 0.1% interest rate, and companies—particularly small and medium-sized enterprises seeking these loans—are facing increased difficulty. The Bank of England’s most recent snapshot of financial conditions in the UK raised particular concerns about the availability of non-bank finance, partly due to tight funding conditions for providers, so with high street banks giving priority to their own customers and the availability of funding making it difficult for challengers to lend, we have factors which make protection of the borrower all the more important. We have to remember that many small and medium-sized enterprises are surviving on a thread.