Financial Services Bill

Lord McFall of Alcluith Excerpts

Wednesday 28th November 2012 Lords Chamber

Moved by

[Lord McFall of Alcluith]

116ZB: After Clause 99, insert the following new Clause—
“Continuous Payment Authorities: debtor’s rights
(1) This section applies where a debtor has granted to a creditor a continuous payment authority for payment of any debt arising under a regulated agreement.
(2) Prior to the debtor granting the continuous payment authority, a creditor must give the debtor a statement of the debtor’s rights in relation to the continuous payment authority.
(3) A debtor may at any time cancel or vary a continuous payment authority.
(4) A cancellation or variation of a continuous payment authority must be signed by the debtor and bear the date of the signature.
(5) A bank is obliged to comply with immediate effect to a cancellation or variation of a continuous payment authority signed by the debtor.
(6) A debtor must inform the creditor within 24 hours of signing the cancellation or variation that the continuous payment authority has been cancelled or varied.
(7) In this section “continuous payment authority” means an instruction or mandate given by a debtor to a bank to pay a fixed or variable sum to a creditor.”

[Lord McFall of Alcluith]

This proposed new clause seeks to make the law on continuous payment authorities, sometimes referred to as CPAs, clearer and more weighted in favour of the debtor. As noble Lords know, these are harsh times for many working families under pressure from rising food and fuel costs and living in fear at the prospect of job loss and insecurity. They know only too well how difficult it is to stretch a wage from month to month, week to week, and even day to day. It is no wonder, then, that frequently these hard-pressed families and wage earners find that their money is simply not enough to stretch to all their needs from payday to payday, and that many of them have recourse to what are euphemistically called short-term lenders, more popularly known as payday lenders.

Consumer Focus research published in May this year showed that many banks’ customer service advisers were unclear about the rules concerning continuous payment authorities and could be giving customers incorrect advice as a result. A continuous payment authority is a type of regular, automatic payment arrangement set up by using a debit or credit card. It is like a direct debit. Under a CPA, consumers give a supplier or retailer permission to take payments on their cards. However, unlike direct debit, there is no written communication between the individual and the bank. Although CPAs are used by many businesses, including insurance companies, magazine companies and gyms, my concern is about how they are used by payday lenders. CPAs are sometimes known as recurring payments and are often used in the short term or payday loan market. Many payday loan companies use CPAs to retrieve loan payments from customers. This involves the debtor giving the company his or her card details and authorising the lender to take regular payments from the account.

Various reports suggest that customers are generally not aware of the right to withdraw from CPA schemes. For example, a report in the Guardian of 2 May this year stated:

“Consumer Focus raised particular concerns about continuous payments to payday lenders set up on the accounts of people with debt problems … cash-strapped consumers are having an even tougher time paying priority bills such as their rent, mortgage or heating costs due to some payday lenders ‘dipping’ into their account”.

The Consumer Focus research raised particular concerns about continuous payments to payday lenders set up on accounts of people who already have debt problems and recommended that clear and accurate information be provided to these customers from banks and loan companies, particularly regarding the right to cancel.

All that is fair enough and I know that the Department for Business, Innovation and Skills and the OFT have been doing work on this. Indeed, the Office of Fair Trading issued a warning to payday lenders on 20 November by opening formal investigations into several payday lenders over aggressive debt collection practices. It published a progress report last week as part of its compliance review of the payday lending sector and highlighted concerns about the adequacy of checks made by some lenders as to whether loans will be affordable for borrowers, the proportion of loans which are not repaid in time, the frequency with which some lenders roll over or refinance loans, the lack of forbearance shown by some lenders when borrowers get into financial difficulty, and debt collection practices. It also published revised debt collection guidance last week, focusing on continuous payment authorities. Under the heading “Deceptive and/or unfair methods”, paragraph 3.7 of the guidance states:

“Dealings with debtors and others are not to be deceitful and/or unfair”.

The OFT then gives examples of unfair or improper practices. I realised that the concept of misusing a continuous payment authority covers no fewer than five pages in the OFT report. Some of the examples made me fearful for the people who enter into these loans and give a CPA authority to their lender.

I shall give the House a number of examples of bad practice to be avoided, as mentioned in the OFT report. The report states:

“Using the CPA other than as set out in the credit agreement or without the informed consent of the debtor”.

It also refers to debiting a higher or lesser amount than agreed and debiting an account before or after the due date. The report also states:

“Using the CPA in a manner which is unreasonable or disproportionate or excessive in failing to have proper regard to the possibility that a debtor is in financial difficulties”.

The last example includes seeking payment before income or other funds may be reasonably expected to have reached an account, seeking payment where there is reason to believe that there are insufficient funds, or using the CPA after the debtor has informed the creditor that he or she is in financial difficulties and cannot afford to repay.

Further, the OFT identifies as a problem:

“Failing to document the CPA appropriately or to explain it adequately before entering into the credit agreement”.

Sometimes a credit agreement is not complete because relevant terms are missing; or it is written in unclear, unintelligible language; or it is confusing, unfair and misleading. The OFT guidance expects the agreement to identify that the CPA can be cancelled by the debtor or that alternative repayment options may be available.

It is all very well to issue guidance and I sincerely hope that guidance will be followed. However, my reading of this report convinces me that much more than guidance is required in this case. Such blatantly unfair treatment of consumers should not be restricted to a matter of guidance. This proposed new clause ensures that debtors are informed about their rights and that only the debtor may cancel or vary a CPA. Furthermore, the debtor’s bank is obliged to comply with the debtor’s instructions. We ought to legislate to protect debtors in straitened times.

We abolished imprisonment for debt in the Debtors Act 1860. However, debt itself can create a prison and the misuse of power by creditors can be as hard a punishment as being jailed for debt. I hope the Government will accept this amendment, realising that the balance of power between debtor and creditor must be redressed in favour of the customer. I beg to move.

--- Later in debate ---

[Lord Newby]

My Lords, I do not believe that there is a guarantee. I think that the vast bulk of people who use this system will fall into the category that the noble and learned Lord asked about. However, I will check and will write to him if there is any further information that I can give him to explain those points more fully.

[Lord McFall of Alcluith]

My Lords, CPAs are different from direct debits, as I made clear. Given the legislative complacency in the consumer credit field, I am very unhappy with the notion of guidance. I think that we sent out a message from the Lords today on an earlier amendment, and it was good to have cross-party consensus on that. There are glaring injustices and it is very important that we reinforce that message in the House today. I should therefore like to test the opinion of the House.