Creditworthiness Assessment Bill [HL]

Lord Blencathra Excerpts

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

Moved by

[Lord Blencathra]

1: Clause 1, page 1, line 4, leave out “must” and insert “may”

[Lord Blencathra (Con)]

My Lords, I beg to move the amendment in the name of my noble friend Lord Naseby. He cannot be here today but he has asked me to make it clear that he is not opposed to the principle of this Bill, as am I, but he is worried that it ties the hands of the FCA and is too prescriptive. That is why he seeks to delete the word “must” in the first group of amendments and substitute it with “may”; rather than the instruction to the FCA to “ensure that”, he suggests “consider whether”; and the word “should” in the final amendment in the group is a grammatical change.

In all of these amendments he was guided by the advice of the Consumer Credit Association and I would like to justify the amendments by explaining the CCA’s concerns. I want to set out this properly in this group so that there is no misunderstanding where my noble friend is coming from—the amendments are not a rabid desire for unfettered market forces. These are not so much probing amendments as airing amendments, if your Lordships will accept the term, to air the concerns of the CCA. I know that the noble Lord, Lord Bird, with his tremendous experience in this matter, has considered them and will have impeccable detailed arguments against them. If that is the case, then we will have succeeded in airing these amendments today.

The Consumer Credit Association says that it is not against the general evaluation of credit referencing systems; however, it considers it inappropriate and disproportionate for the law to force firms to use and pay for rental data—or any other specific type of data—in their commercial assessment. It is concerned about what it calls unintended consequences.

At face value, most people would think that requiring lenders to use more data would inevitably lead to better decisions and improved consumer outcomes. However, a number of complexities appear not to have been properly considered, says the Consumer Credit Association. For instance, the rents of just under 4 million households—that is 40% of the rental market—are subsidised via housing benefit to the extent of about £5,000 per household per year. This means that the rent payments in these cases reflect receipt of subsidy rather than a tenant’s propensity to pay. Where the subsidy is paid direct to the landlord, this effect is even more pronounced. In the same vein, non-payment of rent may often reflect delays in paying the benefit rather than the unreliability of the tenant. It also says that well over 1 million tenants are already in arrears on their rent. The proposal would not help this large group; on the contrary, these consumers would find it more difficult to access credit and would therefore become even more financially excluded.

The collection and use of rental data is being marketed to landlords as a means of reducing arrears. The proposal would give unscrupulous landlords who fail to repair their properties increased leverage over tenants, because it would increase the risks for a tenant making any reasonable attempt to withhold or set aside their rent against getting repairs done to the building.

The CCA also says that it is not a given that council tax and rental data would add value for all types of lenders in all situations, yet all firms would be required to pay for this data whether or not they used it. This would be commercially inefficient and the cost would be passed on to consumers through higher prices for credit. It is the CCA’s strong view that firms are the best judges of whether it makes commercial sense for them to subscribe to products such as rental exchange and credit lending. Compelling them by law to do so would, on the other hand, be inappropriate.

Consumer representatives are divided on the potential impacts of the proposal but have flagged the risks of possible harm to some consumers. The Centre for Responsible Credit, for example, has urged caution, because failure to pay rent could lead to the loss of a home, bailiff action and, ultimately, imprisonment. Mainstream lenders are unlikely to consider the data predictive. For many people who miss a rental or council tax payment, it could lead to complete credit exclusion or higher cost credit.

The rollout of universal credit is expected to lead to a significant increase in rent arrears for housing benefit claimants. Similarly, private tenants face rising rents and a freeze on local housing allowance rates. In evidence to the Treasury Select Committee on 28 February this year, both StepChange and Citizens Advice acknowledged the potential negative impact. StepChange said:

“That is fine if the thing that is going to be included is something that you are paying well and on time. If you are behind on your rent and your council tax payment, all that is going to do is enhance the social exclusion for those individuals”.


Matt Upton of Citizens Advice said:

“It is important to acknowledge that it is a double-edged sword. As you say, we see lots of people struggling to pay those bills, and that will not necessarily affect them in a positive way … of the clients we see who struggle to access credit there is a proportion for whom credit referencing is a factor. For a greater proportion it is not the big factor”.


The ambition to increase access to credit for those who rent is laudable. As said by the noble Lord, Lord Bird, I believe that it will help about 80% of tenants, but the CCA says that the proposal’s potential benefits are uncertain, unquantified and currently unsupported by robust independent evidence. My noble friend Lord Naseby thinks that more studies on this must be done but he respects the point of the noble Lord, Lord Bird, that millions of honest, hard-working tenants who pay their rent and council tax would benefit from having their good record of payments used to get a mortgage or cheaper white goods.

I know that the noble Lord, Lord Bird, is keen to pick up the 20% who are in debt and seek ways to get them out of that hole, but my noble friend finds the CCA’s worries and concerns quite persuasive. As I read them, I found them persuasive too. I look forward to the answers of the noble Lord, Lord Bird, and the Minister. All we wanted to do was give these amendments an airing, raise the CCA’s concerns and wait to hear the answer.

[Baroness Lister of Burtersett (Lab)]

My Lords, I am very supportive of what the noble Lord, Lord Bird, is trying to achieve with the Bill. I have to admit, I was not aware of the issue until I read the debates on it and the Big Issue article he wrote.

I also have some worries about the potential unintended consequences raised by the noble Lord, Lord Blencathra, which I have communicated to the noble Lord, Lord Bird. We have to think about the context: more people are getting into rent arrears, partly because of universal credit and partly because of cuts to the benefits they rely on—in or out of work—at a time of rising rents. We know that council tax arrears are also going up because of what has happened to the council tax support system. This group of people will not be helped by the Bill. That is understandable: the Bill will help those with a good record, which is very useful and important. In his reply, I would like the noble Lord, Lord Bird, to assure the House that things will not rebound on that group and that they will not be in a worse position than they otherwise would have been. It would be helpful to have that assurance on the record.

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I also make the point that the only way in which your credit actually matters is when you go to Argos or Carphone Warehouse and say, “I would like to have a TV”, or whatever it is they are selling, so that you opt in to share your data with them. If you are the poorest of the poorest and you have a bad credit record, you will not be going there so this is an academic argument. The people who will not want to share their credit record are not doing so and not going to Argos; the people who go to Argos are saying, “I’m going to Argos because, thanks to the rent I’ve been paying, I think I stand a very good chance”. Then they say, “I’m going to try and get myself a bigger flat. I’ll try to move from social housing into ownership, and I want desperately the fact to be known that I have been so diligent and useful to my landlord and to myself, by paying the rent”. I would love it if the noble Lord, Lord Blencathra, could withdraw his amendment. Thank you very much.

[Lord Blencathra]

My Lords, one of the unintended consequences of moving and speaking to such apparently innocuous amendments was to get a passionate speech from the noble Lord, Lord Bird. It is worth being the sacrificial lamb to hear that incredibly powerful speech.

When I was in my 20s, before I was elected, I was an even more precocious brat than I am now and everything was clear-cut and certain. There was right and wrong, and black and white. Then I became elected and everything became grey. There was no right and wrong anymore; it was all a bit uncertain. When I read the briefing from the CCA I thought, like my noble friend Lord Naseby, that there were some good points in it on some relevant matters, which were worth airing on the Floor of the House. I say to the noble Lord, Lord Kennedy, that I have no idea who the supporters of the CCA are. I did not inquire as I did not think it was relevant. I thought the arguments and worries it had were worth airing, no matter who the backers are.

The only other point I want to pick up is from the noble Baroness, Lady Kramer. I think she was a bit unkind when she said that I gave the game away in saying at the start that the provision would force firms to use and pay for rental data. My motivation was not to flag up concerns about organisations being made to pay but to float some of the worries of unintended consequences. I could retaliate to her by saying that, of course, Experian may make a lot of money out of dealing with the 4 million who have good credit at the moment and are paying their rent on time. The economic argument may cut both ways.

I think that I floated those arguments in less than five minutes and I can be very brief now: I do not think that I have commanded a majority of the House. I can say that to the noble Lord, Lord Davies. Mind you, the Government have not commanded a majority of the House on 14 crucial issues and they were not necessarily wrong either. However, I find the arguments of the noble Lord, Lord Bird, and others who have spoken incredibly persuasive and powerful. We have done our job today. We have given these amendments an airing and heard persuasive arguments against them. I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

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Moved by

[Lord Blencathra]

4: After Clause 1, insert the following new Clause—
“Review and termination
(1) The FCA must carry out a review of whether rules pursuant to section 1 have been effective in achieving their objectives.(2) The review must be carried out no later than two years after the passing of this Act.(3) As soon as practicable after conducting the review and no later than 6 months after section 1 has been in force for two years, the FCA must—(a) produce a report on the outcome of its review, which must include a recommendation as to whether or not the FCA considers the rules should be extended; and(b) publish the report.(4) Section 1 and rules pursuant to it will cease to have effect unless a resolution to maintain them has been passed by both Houses of Parliament within 6 months of publication of the FCA report.”

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[Lord Blencathra]

My Lords, I can be even briefer in moving and speaking to these amendments. They are fairly self-explanatory, so I do not need to go through them in detail. They would provide for a review of how successful the measures have been and for a sunset clause.

Amendment 4 would ensure that the effectiveness of the rules is assessed after two years of their operation. I think it is important to do that, whether my amendments are accepted or whether the Bill as it stands passes into law. The legislation and the FCA rules would cease to have effect no more than three years after implementation unless, further to the FCA’s report, Parliament approves their continuation. This is a sunset clause, in line with better regulation principles. It is similar to the approach taken in the Domestic Gas and Electricity (Tariff Cap) Bill. If Parliament is to direct an independent regulator such as the FCA to introduce rules on a particular issue, then my noble friend Lord Naseby and I think it reasonable to seek to ensure that if those rules are not having the impact Parliament hoped for, they would cease to have effect.

I see that other noble Lords have tabled amendments which I think do roughly the same thing, unless I have completely misunderstood them. I may have done so and am happy to be corrected. Amendment 4 would insert a simple new clause so that after two years, we would review how well the Bill is working and give Parliament a chance to continue with the rules or not, as the case may be. I beg to move.

Amendment 5 (to Amendment 4)

Moved by

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[Lord Blencathra]

My Lords, this was a simple little amendment asking for a review of the law after a couple of years. I did not understand why the noble Baroness, Lady Grender, needed to amend the amendment. If she did not like what I was seeking to do, she should have just opposed it. I can understand her saying that we cannot have the bit whereby a resolution of Parliament could reject it after a couple of years, but rejecting a review after two years seems a bit unreasonable. I was not seeking to delay the Bill for two years. The amendment merely states—and I happily stand to be corrected—that after the Bill promoted by the noble Lord, Lord Bird, is in force, the FCA should conduct a review after a couple of years. That seems a completely safe and innocuous thing to do. However, I make that point in defence of my amendment. We have been discussing this important Bill and these amendments for just one hour and 10 minutes. That has been a worthwhile way to spend that time. No one on any side has sought to delay the Bill or to wreck it. The noble Lord, Lord McAvoy, will confirm that between 1997 and 2001, if I and my late colleague Eric Forth MP wanted to delay a Bill we could keep going all night, but we are not in that mood and that mode because this is a rather good Bill. I felt the amendments deserved an airing this morning, which they have had.

Amendment 5 (to Amendment 4) withdrawn.