Business and Planning Bill

Lord McNicol of West Kilbride Excerpts

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Monday 20th July 2020 Lords Chamber

[Baroness Wilcox of Newport [V]]

My Lords—[Inaudible.]

[The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)]

Unfortunately, Lady Wilcox, we cannot hear you. Can we try again?

[Baroness Wilcox of Newport [V]]

Deputy Speaker, can you hear me now, please?

[The Deputy Speaker]

Yes, carry on.

[Baroness Wilcox of Newport [V]]

Thank you. I thank all noble Lords who have spoken in this debate for the many important and apposite points raised. The Government could have gone further in the development of their amendment, as I noted, and thus we tabled our own amendment. I may be one of the most recent Members of your Lordships’ House but I believe it is one of the prerequisites of our work to make those changes. For the record, the Welsh Health Minister, Vaughan Gething, made a manifesto commitment before the introduction of legislation that will follow, under normal process, regarding Wales’s public spaces and smoking in the next Senedd term. We will keep these matters under review and, no doubt, return to the issue within longer-term legislation in the future. I therefore now beg leave to withdraw the amendment standing in my name.

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Amendment 15 withdrawn.

[The Deputy Speaker]

I inform the House that if Amendment 16 is agreed to, I cannot call Amendments 17 and 18 by virtue of pre-emption.

Amendment 16

Moved by

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Amendments 17 and 18 not moved.

[The Deputy Speaker]

We now come to the group beginning with Amendment 19. I remind noble Lords that Members other than the mover and the Minister may speak only once, and that short questions of elucidation are discouraged. Anyone wishing to press this or anything else in the group to a Division should make that clear in the debate.

Amendment 19

Moved by

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[The Deputy Speaker (Lord McNichol of West Kilbride) (Lab)]

We now come to the group consisting of Amendment 53. I remind noble Lords that Members other than the mover and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this amendment to a Division should make that clear in the debate.

Clause 12: Removal of powers of court in relation to unfair relationships

Amendment 53

Moved by

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[The Deputy Speaker]

I now call Lord Naseby.

Let us go to Lord German and then we will try to return to Lord Naseby.

[Lord German [V]]

My Lords, I support this amendment, tabled by my noble friend, because, put simply, it would do two things. First, it would put beyond doubt the protection which borrowers of bounce-back loans have against their lenders pursuing punitive action if they default. Secondly, given the relatively low take-up of these important loans, it would give reassurance to companies seeking to use the facility provided by the Government as essential finance to keep them in business and retain employment.

Companies may have been, or are, hesitant to take out these loans for a variety of reasons. For example, they might be worried about repayment, the ongoing viability of their business or whether they wish to continue trading. But to respond to these fears, the Government must assist by providing the maximum level of certainty on what happens if the borrower cannot repay the loan. The guarantee to the lenders is that the Government will bear the cost of defaulting. This is very welcome, but that guarantee is given to the lender and not to the borrower. There is some protection in place to prevent the lender taking further actions against the borrower, but the legislation before us takes away most of the ultimate protections for a borrower—to have recourse to the courts.

My noble friend has outlined these issues in great detail. I am grateful to her for the forensic manner in which she laid out the borrower protection arguments for this amendment. I will not repeat the detail on the missing protections that she has given.

Taking the two reasons I have outlined for supporting this amendment separately, on the first it is clear that many lenders, mostly large high-street banks, will already have banking arrangements with those who are seeking or have taken out these bounce-back loans. In Committee, I quoted examples of this relationship possibly being used to influence the behaviours of lenders. Put simply, they have financial power over their borrowers through that continuing relationship with them. Other lenders, many of them now trying to lend money under these schemes, have difficulty in getting their hands on the 0.5% interest cash that the Government have made available to lend, largely because the big banks will not funnel these funds through to them, on the “Why should we help our competitors?” principle. This means that the big banks will have a bounce-back loans advantage, most frequently with their existing customers.

On the second reason, the Government estimate that many more of these loans will be needed—perhaps four times as many—to protect small companies from going under, given the consequent unemployment that would cause. These loans need to provide protection for the borrower in a way which will not deter them from proceeding. The fallback of court protection from the poor behaviour of the lender provides a higher level of reassurance to borrowers, in line with the current legislation.

I share the Government’s hope that these loans can provide a lifeline to many companies. They are a very good response to the pandemic. This amendment would support the Government’s ambition and strengthen the case for businesses considering taking out these loans by removing the concern that default could lead to unfair sanctions being imposed on them.

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[Baroness Penn (Con)]

I thank the noble Baroness, Lady Bowles, my noble friend Lady Altmann and the noble Lords, Lord Stevenson and Lord Carlile, for tabling the amendment. I also thank them for the discussions that we have had on this matter since a similar amendment was tabled in Committee. I have listened very carefully to the concerns of the noble Baroness, Lady Bowles. I stress at the outset just how seriously the Government take the protection of those who have taken out a bounce-back loan. I will set out what form those protections take, as the noble Lord, Lord Stevenson, asked me to do.

We have integrated significant protections into the Bounce Back Loan Scheme. I point towards the obligations that the scheme imposes on lenders to act honourably. I set out many of those terms in Committee. Loans are capped at 25% of turnover and the interest rate for the scheme is capped at 2.5%. The Government will cover interest and repayments for the first year of the loan. That helps to address the point made by the noble Lord, Lord Carlile, that businesses might not be able to afford to repay the loan now due to current circumstances but, with a bit of time to get back up and trading, will be able to meet those payments in future.

The lender may not levy any fees or interest beyond the fixed interest rate of 2.5% a year, including any fees on default. I reassure the noble Baroness, Lady Bowles, on this point. Lenders are required to adhere to the scheme rules as set out in this agreement. They may use their standard terms and conditions for documenting the loans. This might be where the confusion has come from, but there is no ability to charge any fees or interest beyond that 2.5% a year.

We will get more into the detail of some other protections, but a number of noble Lords raised the question of the balance of fairness in these loans. These loans set out to be a very standardised product. Protections such as no lender levy fees whatever and a fixed interest rate of 2.5% a year are also factors that need to be taken into account when we look at the balance of fairness and include in that the government guarantee at 100%.

Further protections include the provision of clear information before and during the life of the loan, which was an issue a number of noble Lords raised. In response to the noble Lord, Lord Carlile, I say that lenders are obliged to make it clear in the terms of the loans that the protections under the Consumer Credit Act do not apply to these loans. That is also stated up front.

The noble Baroness, Lady Bowles, asked about the question raised at Second Reading on forbearance of these loans. That is provided for in the terms of the guarantee agreement. There must be forbearance on missed payments, allowing the customer a reasonable time to remedy defaults without consequence. There must also be signposting of appropriate assistance where businesses experience payment difficulties.

We come on to the retention of Financial Conduct Authority oversight for debt collection by lenders of loans that would be regulated credit agreements but are exempt by virtue of them being bounce-back loans, and the right for eligible borrowers under the scheme to access the Financial Ombudsman Service to resolve disputes. I will go into more detail on FCA and Financial Ombudsman Service oversight a bit later, because I know noble Lords will want it. A point was raised in our discussions outside the Chamber on the reservation that, despite the specific protections, the unfair loans provisions in the CCA provide a very broad and general protection so that, if some of these protections that we have specified turn out not to be enough or banks might find a further loophole, the broad provisions provide further protections.

I reassure the noble Baroness that there is also a general, overarching commitment in the guarantee agreement. The lenders have an overarching obligation that they must always act in good faith and not behave in a manner that could reasonably be expected to bring the scheme or the guarantor into disrepute, or in a way that contravenes any applicable law or regulation. This includes all actions in respect of servicing and enforcement of the loan. The lender’s performance of such obligations is subject to audit by the British Business Bank, and the obligations of the guarantee agreement are legal, valid, binding and enforceable obligations. Failure to comply with these terms in the guarantee would mean lenders risk not being able to make a claim under it, which would provide an exceptionally strong incentive to firms to conduct themselves properly. I assure the noble Lord, Lord Stevenson, that if such behaviour that contravened the terms of the guarantee agreement were brought to light, the Government would have no qualms about using their power to withdraw the guarantee.

The Financial Ombudsman Service, raised by a number of noble Lords, also has a more general obligation and duty in cases brought to it to make decisions on what it thinks is fair and reasonable in all circumstances of the case. The noble Baronesses will know that in 2019 the Government expanded eligibility to access the Financial Ombudsman Service so that small businesses with an annual turnover of less than £6.5 million and either an annual balance sheet total of less than £5 million or fewer than 50 employees can access the Financial Ombudsman Service. This means that an estimated 99.5% of SMEs can access the Financial Ombudsman Service. I make the point to the noble Lord, Lord Carlile, that for very small businesses that are inexperienced in taking out credit, a free-to-access ombudsman service—rather than a law suit—is often by far the preferred way to resolve a dispute.

As has been previously noted, the collection of debts under the bounce-back loan scheme remains a regulated activity for loans of less than £25,000 to sole traders, partnerships of fewer than four people and unincorporated associations. That means lenders under the scheme must comply with the FCA’s consumer credit conduct of business standards, rules and guidance on arrears, default and recovery in chapter 7 of the FCA’s Consumer Credit Sourcebook, as well as the FCA’s high-level principles, when collecting debts related to those agreements. As the noble Baronesses will know, this protection reflects the position for business lending more broadly and the fact that all business lending over £25,000 is not FCA-regulated.

I say to the noble Baroness, Lady Bowles: it is not that we were restricting FCA regulation of debt collection in bounce-back loans to loans under £25,000. That is the cut-off point—the threshold—where we regulate that lending activity, and that has not been changed in this. What has happened is that when we removed other provisions in the Consumer Credit Act, which we did via secondary legislation, we reinserted or kept the FCA regulation of debt collection for debts under £25,000 but did not extend it, and nor would we. We think that is the right threshold for FCA regulation of activity, as the noble Baroness, Lady Kramer, said.

To address the point from the noble Baroness, Lady Altmann, about limited companies, it is worth noting that the provisions in this clause would never have applied to limited companies. The protections in the Consumer Credit Act do not apply to limited companies and so, by disapplying these parts of the Consumer Credit Act, we are not changing their position in regulation at all.

A few further points were raised. On the point made by the noble Lord, Lord Stevenson, in Committee and again today more broadly about the Consumer Credit Act 1974, he is right to highlight that that legislation dates back nearly 50 years. Through subsequent amendments, it has become increasingly complex and challenging to navigate. That is reflected in the fact that, in addition to Clause 12 in this Bill, the Government used secondary legislation so that bounce-back loans would not be regulated credit agreements and are now exempt unregulated agreements.

We have made some progress in modernising the consumer credit regulation. In 2014, the FCA took over responsibility for regulating consumer credit. Part of the transfer of the provisions in the Consumer Credit Act 1974 was repealed and those provisions were replaced by FCA rules. However, there was more to do and, since then, the FCA has reviewed the remaining provisions and it published its final report into the matter in March 2019. The Treasury has been undertaking a programme of work to consider the FCA’s findings in detail. It is currently focused on our response to the Covid-19 crisis but, once the urgency of the crisis has subsided, the Government hope to set out in more detail the next steps that they will take on the Consumer Credit Act 1974.

The second point that I would like to make is about the impact of this amendment, should it be agreed. Lenders have made over £30 billion-worth of loans under the scheme in anticipation of Sections 140 to 140C of the Consumer Credit Act 1974 being disapplied. Borrowers have entered into those agreements in the knowledge that the usual protections will not apply. I point out to the noble Lord, Lord German, that over 1 million businesses have benefited from this measure, and that take-up is not insignificant.

Lenders have informed us that, should the amendment be agreed, it is likely that they would cease to offer any new lending under the scheme, thus depriving small businesses of the vital finance they need to weather this crisis. I understand the concerns expressed by noble Lords, but it is not possible to be in favour of the Bounce Back Loan Scheme but not in favour of this part of it—a part that has been crucial in getting the lending going.

My colleagues in the other place have been grateful for the constructive discussions that they have had with the Opposition during the development of the scheme and for the agreement that these measures, although extraordinary, were necessary to rapidly provide small businesses—the lifeblood of our economy—with the funding that they have needed in these extraordinary times. In developing the scheme, we have also worked closely with the FCA.

In response to those noble Lords who asked this question, there is an ongoing programme of work to look at the recoveries process for these loans. The Treasury has convened recoveries workshops with all accredited lenders, along with the FCA, the PRA and the British Business Bank, aimed at ensuring a consistent industry-wide approach to the collection and recovery of bounce-back loans. These discussions will follow the customer journey throughout the lifetime of the loan and ensure that lenders understand the type of support that they can provide to borrowers.

The legislative changes already made in secondary legislation and which we are now seeking to make in primary legislation are integral parts of the design and functioning of the scheme. They have been worked through carefully but also at pace, given the urgency with which small businesses have needed this support. The changes have been made alongside targeted protections built into the guarantee and, where possible, regulations. Without this scheme, lenders would not be able to provide the finance at the necessary pace and scale in response to the huge economic disruption caused by Covid-19.

I hope that I have given the noble Baroness reassurance that borrowers have robust protections under this scheme and that she will feel able to withdraw her amendment.

[The Deputy Speaker]

I have received no requests for speakers to come back after the Minister, so I now call the noble Baroness, Lady Bowles.

[Baroness Bowles of Berkhamsted [V]]

My Lords, I thank all those who have spoken in this debate. The noble Baroness, Lady Altmann, reminded us how attractive assets might tempt a bank or that companies’ equipment could be seized when they ended up in default after a period of forbearance. The noble Lord, Lord Carlile, with reference to the Post Office cases, reminded us how bad things can happen and that sometimes things that perhaps start off looking reasonable get very much out of hand. My noble friend Lord German reminded us that companies need the confidence to borrow. Perhaps we need four times as many bounce-back loans as have already been applied for, but they need protection.