Creditworthiness Assessment Bill [HL]

Lord Bates Excerpts

2nd reading (Hansard): House of Lords
Friday 24th November 2017 Lords Chamber

[The Minister of State, Department for International Development (Lord Bates) (Con)]

I am sorry to rise on such a discordant note from the noble Lord. I have a slight memory of being a Back-Bencher in this place on the Opposition Benches when there was a certain very distinguished Deputy Chief Whip by the name of Lord Davies of Oldham. He knew how to deal with Private Members’ legislation when it did not quite fit with the Government’s approach at the time. I assure the noble Lord that that is not the approach we are taking towards the Bill. The announcement, which I will come to shortly, was not rushed out 48 hours before. It happened to be part of a Budget Statement that had as its main theme helping people into the housing market, which is at the heart of what the noble Lord, Lord Bird, said.

I have to place an interest on the record. The noble Lord, Lord Bird, was a hero of mine long before he arrived in this place. He has done more to help the poor of this country than virtually anybody else I know. It is fantastic that he is here and it is wonderful that he continues to be an advocate—a voice for the voiceless—in our society.

The Creditworthiness Assessment Bill is about Britain’s rental tenants having restrictions placed on them in the availability of credit. They are fortunate indeed to have such a powerful champion in the House of Lords as the noble Lord. The issue at hand concerns the ability of lenders and credit reference agencies to accurately assess the creditworthiness of prospective borrowers. Currently, a history of meeting rent payments is not routinely recognised in people’s credit scores and is not commonly taken into account when banks conduct mortgage affordability assessments. For those without a long history of borrowing on a credit card, this raises the cost of borrowing. The noble Baroness, Lady Grender, articulated that point. This leads to a state of affairs where the poorest pay the most, as the noble Baroness, Lady Thornton, mentioned in her remarks. This problem is commonly described as the “poverty premium”. Those words were used in the debate. It also creates a significant barrier to getting on to the housing ladder because it raises the costs of getting a mortgage.

I recognise that banks must take into account other factors when assessing mortgage applications, including the multiple additional costs that come with home ownership. None the less, rental payments are usually an individual’s largest monthly outgoings and are therefore a significant indicator of one’s creditworthiness. For this reason—I underscore this sentence—it is right that a history of successfully paying rent should be recorded and recognised.

In addition to the noble Lord’s Bill, my colleague Paul Scully in the House of Commons brought a petition by 147,000 people who wanted their rental payments considered in their mortgage application. Their views are echoed by many hundreds of letters sent to Members of the House of Commons and received by the Treasury each month. This is clearly an idea whose time has come.

The Bill states that all firms carrying on credit-related regulated activities, including mortgage lending and providing credit scores, should be required to,

“take into account rental payment history and council tax payment history when assessing a borrower’s creditworthiness”.

I share the Bill’s objectives. We have a clear unity of purpose in seeking to help rental tenants get a fair assessment when they use financial services. Our concerns are ones only of means, not ends.

I am trying at this point not to get drawn into rehearsals of speeches that may have been given in the letting fees abolition efforts of the noble Baroness, Lady Grender, but I believe that the solution to this issue should avoid imposing further regulatory requirements on lenders, landlords or credit reference agencies. Additional regulatory requirements could generate a significant burden for these businesses. For example, given that mortgage lenders currently lack easy access to rent payment data, this approach would force them to go out and acquire it before making each new loan, which represents a significant logistical and technological challenge. This would not be in keeping with our aim to make Britain the best place in the world to do business.

Furthermore, anything that places a burden on lenders could negatively impact the availability of credit in the future: if we make it harder for lenders to offer mortgages to rental tenants, they may decide to offer fewer of them. That would of course be counterproductive to the objectives of the Bill. At minimum, additional operation costs would be likely to be passed on to consumers in the form of higher prices. Both those outcomes would be counterproductive, in our view. My noble friend Lady Wilcox has been a formidable champion of consumer rights over many years, and it was wonderful to have her contribution.

We share a common ambition in seeking to help as many hard-working families as possible get access to credit, ensuring that tenants get due recognition for a history of meeting rent payments on time, but we must endeavour to find a market-based solution rather than a top-down imposition—a solution that works for both consumers and businesses. That is why I am pleased to inform the House that, in the Autumn Budget Statement, the Government announced the rent recognition challenge, a £2 million competition, open to all, challenging the UK’s world-leading technological firms to develop new applications to enable rental tenants to record and collect their own rental payment data and share it with lenders in mortgage affordability assessments and credit scores. Furthermore, these apps could be used in a revolutionary new way, given that open banking technology comes into force in January 2018.

When a tenant pays rent out of their current account, this transaction is encrypted and secured, meaning banks have no easy way of accessing or verifying the information. However, with open banking, individuals will be able to use innovative new solutions to share this current account data through secure channels in a way that they were unable to do previously. Creating this competition allows the Government to serve not as a disrupter of the free function of markets but rather as a catalyst; to promote action, drive innovation, and harness the ingenuity of the private sector. Rather than placing the burden on businesses, this approach aims to empower consumers by giving them the necessary tools to collect, control and share their own data. The challenge will open to applications in January 2018: I encourage all firms with an interest in this important policy area to apply.

The noble Lord, Lord Bird, in his excellent introduction to this debate, asked how it benefits social housing tenants. The challenge is designed to produce solutions applicable to both the social and private rented sectors. We also support the rental exchange scheme, which does important and effective work. The noble Baroness, Lady Thornton, asked about the cost of credit. It is too high for people on low incomes. The Financial Conduct Authority proposes to clarify that firms should consider not just whether a consumer can repay, but whether they can pay without causing financial distress.

The Government’s introduction of a cap on the cost of payday loans was widely welcomed. We have introduced the concept of fee-free banking for many families, to encourage them to have a digital presence and therefore increase their ability to access credit. A key part of that is to ensure that we have people in work and, through measures such as the national minimum wage, to ensure that they can afford it. The noble Baroness, Lady Grender, mentioned raising the tax threshold, which has made a significant difference, taking 4 million people out of paying tax altogether.

I thank all Members who participated in the debate and particularly the noble Lord, Lord Bird, for bringing the matter to the House’s attention. I also thank him for the work that he, the Big Issue and Experian have done over a period of seven years in this role. I encourage them to recognise that their efforts are not in vain. They are making progress and this issue is being raised up the agenda, a fact which was recognised in the announcement that my right honourable friends the Chancellor and the Economic Secretary made in relation to the Budget.

In the aftermath of the damage incurred by the global financial crisis, reforming the financial services sector to work better for consumers has long been among the Government’s top priorities. The rent recognition challenge is the next step in this effort. Creating new and innovative solutions to allow tenants to record and share their rental history would make the credit assessment process fairer, provide a helping hand to aspiring home owners and help to build a better Britain for rental tenants, which is the end that we all seek.

Creditworthiness Assessment Bill [HL]

Lord Bates Excerpts

Committee: 1st sitting (Hansard): House of Lords
Friday 11th May 2018 Lords Chamber

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I strongly support the Bill in its unamended form and do not support the amendments proposed by the noble Lord, Lord Blencathra. When the noble Lord responds to the debate, can he tell the Committee a little bit more about who the members of the Consumer Credit Association are? I do not know whether BrightHouse is a member of the CCA, but if he could tell us it would be helpful.

I grew up on a council estate in the 1960s and 1970s. Both my parents worked and made sure that they paid their rent—it was the first thing they ever did. My dad had two jobs to ensure that our rent and rates were paid. It is important that people who meet their financial obligations week in, week out have that taken into account when they seek credit. As the noble Lord, Lord Best, said, it is always the poor who pay more, and that is totally unfair—of course, that goes for many things in life. When I go into my local newsagent, I see people queueing up with their little fobs to get their electricity; they pay more. And there are other things—it is just unfair. What the Bill does, on which I congratulate the noble Lord, Lord Bird, is begin to make sure that, if you have a good credit record, that is taken into account properly, so that when you seek credit you can get a fair price and will not always have to pay the most.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, I thank my noble friend Lord Blencathra for moving the amendment, but before I turn to the amendments I shall make some general remarks about the noble Lord, Lord Bird, and his Bill. I should state categorically that the Government’s position is not one of opposition to the purpose he seeks and which so many noble Lords have spoken very powerfully about, which is to ensure that people’s rent or credit history is taken into account when credit decisions are made. The question is about the means by which we achieve that, whether this legislation is the right way to do it and whether we should seek to mandate it.

My noble friends Lady Gardner and Lady Wheatcroft were right to point out that, in effect, the amendments would undermine the Bill because they would give to the Financial Conduct Authority discretion, which in many ways it has at present, to act in these ways should it so wish. The underlying concern is very real, and it is shared by John Glen, the new Economic Secretary to the Treasury, who is working very diligently on this, and it is shared by the Government. We recognise the very real concerns of people on low incomes seeking to access credit.

The report of the committee chaired by the noble Baroness, Lady Tyler, to which the Government have responded, called in its recommendations for having a Minister for financial inclusion, and that is something we have made some progress on. Financial inclusion is very important, and we are building upon a series of measures that we have sought to introduce, starting with the cap on payday lending, to stop the exploitation that was happening, with some of the horrendous interest rates that my noble friend Lady Wheatcroft referred to.

One of the problems was that a lot of the poorest people did not have bank accounts. Therefore, we introduced basic bank accounts, which are fee-free accounts, to get people into that area. Another initiative, which the noble Lord, Lord Desai, talked about, is the use of technology: he referred to blockchain and fintech solutions, which I shall come to shortly. We see great potential in open banking, allowing people to share their bank records online—their payment history, their incomes and outgoings—with people from whom they might be seeking credit. Again, that may be something that helps in that area.

Several noble Lords talked rightly about the appalling way that the poorest in our society are preyed upon by illegal money lending—loan sharks, as they are referred to. In fact, John Glen, the Economic Secretary, announced less than a month ago, I think, that we will be putting another £5.5 million into the fight against illegal loan sharks in England, Scotland, Wales and Northern Ireland.

The noble Lord, Lord Hain—and, I think, the noble Lord, Lord Kennedy—made reference to credit unions. We see credit unions having a huge role to play in this area: that is one reason why the coalition Government introduced significant investment in credit unions and changed the way in which they can operate. Some £38 million was put into helping credit unions to form, to operate and to raise capital: we think they are a crucial part of seeking to tackle this type of exploitation.

--- Later in debate ---

[The Minister of State, Home Office (Baroness Williams of Trafford) (Con)]

I was.

[Lord Bates]

You were? I am sorry.

That is why we now have a Secretary of State for Housing, Communities and Local Government. With all these points I am trying to set out that we do not believe that this Bill is the right way forward because it is too prescriptive in its approach. The amendments cut across the purpose and effect of the Bill so we do not support them either. But we are mindful of the importance of the responsibility to act in this area and we are doing that in a whole range of areas, as I have outlined to the House today.

[Lord Kirkhope of Harrogate (Con)]

My noble friend Lady Wheatcroft made important remarks about the exorbitant rates charged to people who are often very vulnerable in the impression that they receive when being sold these products. Following those remarks, does my noble friend not agree that the plethora of advertising—particularly on television—which presents itself to these vulnerable people ought to also contain, as in the case of cigarette sales, clear warnings on every such advert that independent advice or advice that might be obtainable through government agencies or others should be taken before anyone commits themselves to such appalling transactions?

[Lord Bates]

My noble friend is right to draw attention to this. This is why we have the FCA as an independent body to regulate activities in those areas. It is why it took the robust action it did in the case mentioned earlier by the noble Baroness, Lady Wheatcroft.

[Lord Campbell of Pittenweem (LD)]

I am most grateful to the Minister for giving way, particularly since up to now I have been only a spectator to this legislation. I was particularly taken by the fact that he referred to illegal moneylending and the so-called sharks. It is important to remember that the people who have to go to those sharks cannot hope to achieve any kind of credit from the kinds of operations that the noble Baroness, Lady Wheatcroft, referred to. The loan sharks’ weapons are intimidation, abuse and sometimes violence when it comes to recovery. Illegal moneylending is notoriously difficult to prosecute and therefore I would be grateful to hear that the Government understand that and that the initial sum which has been offered is not the end of the matter.

[Lord Bates]

Just to update the noble Lord on this point: the money that has been announced will help investigate and prosecute illegal lenders and support victims and those vulnerable to loan sharks. Overall, this is a 16% increase in funding. In England £100,000 seized from loan sharks will be spent on encouraging people at risk of being targeted by loan sharks to join a credit union as an alternative. The quadrupling of funding will help vulnerable consumers access a safer form of finance and get their lives back on track.

[Lord Kennedy of Southwark]

We often hear that financial institutions are fined for doing things wrong. I know that those fines go into the general fund and are used for various things. One good thing they could be used for would be to support the credit union movement so that it can advertise the alternatives that are around. It is not just the monetary fines, it is the fact that the punishment is advising the public to go elsewhere and that there are cheaper alternatives. Often the credit union movement cannot have adverts in the Tube and on the buses and elsewhere, and it cannot fund phone lines. It would be useful and a good way to deal with fines from financial institutions. Perhaps the Minister will take that back to his colleagues in the Treasury.

[Lord Bates]

I am very happy to take that back. It is an example of the innovative ideas that we can discuss as alternatives to the measures before us today in terms of legislation. As the noble Lord was speaking, I was thinking of the Libor fines. Those sums were significant —some £600 million or £700 million—but the then Chancellor designated that they would be given to the families of servicemen and the emergency services. There is an example there. My point is that I think there are solutions which would better achieve the effect that the noble Lord, Lord Bird, is rightly trying to achieve.

[Baroness Kramer]

My Lords, the Minister has been very generous with his time. The virtue of the Bill of the noble Lord, Lord Bird, is its sheer simplicity. So often Governments come up with incredibly fragmented, complex and convoluted attempts to solve a problem. The Minister pointed a moment ago to the cap on payday lending. He will remember that the Government resisted that right to the very last, with exactly the same kinds of arguments about fintech, alternative approaches, different ways of dealing with it, cost and trying to crack a nut with a hammer. But they now laud that cap on payday lending. My suspicion is that if they decided to support the Bill brought forward by the noble Lord, Lord Bird, they would very soon be lauding that solution, its simplicity and its universal application.

[Lord Bates]

I hear what the noble Baroness says but, as other Members have pointed out in the debate, there is the risk of some unintended consequences as a result of taking this approach. I have also outlined that we are not dismissing the problem, but are seeking an alternative route to solving it which we believe will be more effective and fairer, and avoid some of those unintended consequences. If that turns out not to be the case, of course we are always open to review our position vis-à-vis proposals such as this, and we will continue to act in that way because our first priority is to protect the most vulnerable and help them make a better future for themselves and their families by getting access to home ownership.

[Lord Bird (CB)]

I really enjoyed that. That was a brilliant array of political parties coming together in the House. I am really glad. I am also glad that the noble Lord, Lord Blencathra, introduced the amendments in his name and that of the noble Lord, Lord Naseby, because they allow us to address the laws of unintended consequences. The noble Baroness, Lady Lister, also raised the question.

I come from a long line of people who did not pay credit. I am not likely in my dotage to be grassing up the people I come from. My mother used to go to a doorstep lender, who would direct her to a particular shop, where we paid through the nose over and again in the 1950s, 1960s and 1970s, until she died in absolute poverty in the late 1970s. I am not going to grass these people up, I assure your Lordships. Actually, I am much more interested in the 15% or 20% of people who are going to find it very difficult to get credit. They are finding it very difficult to get credit now.

--- Later in debate ---

[Baroness Grender]

My Lords, this is a probing of an airing, to give the technical term. The primary aim of this amendment is to counteract the other amendments tabled by the noble Lords, Lord Naseby and Lord Blencathra. Amendment 5 has been tabled to say, “This needs to happen now”. Its primary point is that the FCA needs to conduct a review and do it now.

I am fully aware that the FCA is at the moment conducting a high-cost credit review. However, its most recent conclusion is that it is,

“prepared to look at solutions designed to increase the choice”,

and encourage the,

“availability of alternatives to high-cost credit”—

in other words, more delay. The main point I want to make as a result of this amendment is that tenants cannot wait any longer. The number of tenants is doubling and government policies are not keeping pace. What we need is the immediate implementation of this, not to wait and have a two-year delay. That is the primary reason for this probing amendment. I thank the noble Lord, Lord Kennedy, the right reverend Prelate the Bishop of St Albans and the noble Baroness, Lady Jones, for supporting this amendment. It is an amendment to an amendment, so if the noble Lord, Lord Blencathra, withdraws his amendment, it falls by the wayside.

When I had my Private Member’s Bill banning tenants’ fees, the Government used the unintended consequences argument, asked whether the problem could be solved via the market and then rightly changed their mind, but it is taking a very long time for this to come through. I sometimes wish that the Prime Minister had put a date on this, rather than on one or two other items that have come before noble Lords this week.

I take the opportunity of this amendment to say to the Minister that I think he should support the Bill and give it a fair wind, and that the Government Benches should give a fair wind to more time for it so that it has its Report and Third Reading stages and is sent to the other place. The number of tenants is increasing enormously and legislation is not keeping pace. The FCA needs to conduct an urgent inquiry into the people who were described in the debate on the previous group of amendments, and for that reason I am attempting to amend the amendment.

[Lord Bates]

My Lords, I think I can be brief on this group. I thank my noble friend for moving the amendment. This group of amendments concerns the proposal for the Financial Conduct Authority to conduct a review into the experience of rental tenants, with particular regard to their ability to demonstrate their creditworthiness under the existing rules.

I remind the Committee that the FCA recently consulted on proposed changes to its rules and guidance on assessing creditworthiness in consumer credit and has undertaken research on this subject, which carefully considered the factors that firms take into account when making lending decisions. This consultation made direct reference to the current limitations on sharing rental data and the potential for new technology to alleviate them. That is the purpose behind the rent recognition challenge.

Furthermore, in April 2018 the FCA announced that it will conduct a market study on credit information. A consumer’s credit information affects how likely they are to be able to access a range of financial services, including mortgages, loans and credit cards. Consumers may experience harm, such as restricted access to credit, if this information, such as rental payment history, is not shared effectively. The FCA’s aim is to ensure the credit information market works as well as possible to maximise the benefits that it can deliver for consumers. The FCA will also collect evidence to gain a better understanding of the potential for harm in this market and, if necessary, identify remedies. This study will be launched in quarter four of 2018. Finally, the FCA conducts a review of all new interventions as a matter of course and continues to monitor the market for consumer detriment on an ongoing basis.

In conclusion, I put it to the Committee that the need for a further review by the Financial Conduct Authority into this issue is unclear, as the regulator is already carrying out extensive work in this field. The Government’s position on the Creditworthiness Assessment Bill therefore remains unchanged.

[Lord Bird]

I am pleased that the noble Lord has withdrawn—I feel a great victory. We have to move on to the next stage, and I thank the noble Lord, Lord Bates, for this great opportunity to respond to what we said. I thank the noble Baronesses, Lady Grender and Lady Thornton. It seemed all a bit “spaghetti” just now, so forgive me my trespasses. I will sit down. Thank you very much indeed.