Lord Stevenson of Balmacara
Main Page: Lord Stevenson of Balmacara (Labour - Life peer)Consumer Rights Bill
Lord Stevenson of Balmacara Excerpts“( ) a financial services contract which contains a bill of sale agreement regarding the ownership of goods”
Lord Stevenson of Balmacara (Lab)
My Lords, in moving Amendment 3 I shall speak also to Amendments 5, 10 and 56. Few people will not be aware of the considerable influence that your Lordships’ House has had on curbing the explosion of high-cost credit, which has so disadvantaged consumers in recent years. Perhaps this is not the place to rehearse the broader arguments as to why high-cost credit became such a scandal in the first place, but it may be worth recalling that it was mainly spawned out of a need for access to credit when the banks stopped lending and it was certainly compounded, in my view, by the Government’s initial indifference to the issue, reflected in their oft-repeated mantra that the market would sort itself out, and then their grudging admission that there was an issue and an acceptance that regulatory intervention was required, and finally the issuing of instructions to the regulator to sort things out by January of next year. In mentioning this we should acknowledge the all-party support for this démarche on high-cost credit, a roll of honour which has been led by my noble friend Lord Mitchell and the then right reverend Prelate the Bishop of Durham, now the most reverend Primate the Archbishop of Canterbury—and of course there are others.
However, the job is not complete and much still needs to be done to deal with personal debt, and as I declare my interest as the retiring chair of StepChange, the debt charity, I want to point out that its report published last week indicates that while unmanageable debt is a devastating problem for every family which has problems in this area, it is also an £8 billion problem for the economy in terms of its impact on services, reductions in GDP, and as a break on the aspirations we all share of the country returning to something better than trend growth. We need to do all we can to help consumers in the area of credit, and that means looking at other examples of high-cost credit which continue to evade the regulatory structures that are now in place.
A logbook loan is a bill of sale securing a loan on an asset, often a vehicle, and it gets its name as the lender retains the vehicle’s logbook—now the vehicle registration certificate; I think it is the V5C—until the loan or any outstanding interest is repaid. But unlike all other consumer credit areas, the use of the archaic bill of sale legislation which was passed in 1878 for this particular form of loan means that the lender can repossess the debtor’s vehicle without having a court order. Logbook loans are another form of very high interest credit and share with payday loans potentially unfair terms and conditions. Logbook loans tend to be used for people who have had bad credit and need cash quickly. A check on the internet shows that logbook loans can be completed in as little as 15 minutes with very few credit checks and certainly no checks on affordability or the ability to repay. Recent research by Citizens Advice shows that logbook loans secured by a bill of sale are generally in the range of £500 to £2,000 and average at just over £1,000. They are typically over a 16-month to 18-month period with APRs in the range of 200% to 500%. It is true that a logbook loan can be issued only by a company that holds a consumer credit licence, but the pernicious aspect of this type of loan lies in the use of the bill of sale mechanism because that is not regulated and, as I have said already, companies can seize the asset—for example, if the loan is not repaid.
Baroness Jolly (LD)
My Lords, I turn first to Amendment 10. The Government agree that it is important that when a consumer buys goods they should have confidence that they have free use of them without worrying that someone else has a claim to them. The consumer should always be made aware if someone else has a claim to the goods so that it does not come as a nasty surprise later. While I appreciate that the intention of the amendment is to ensure that this happens, Clause 17(2) already addresses this point appropriately and proportionately.
Clause 17(2) requires the trader to disclose any outstanding claims or charges over the goods. The provision makes it a term of the contract that there are no charges that the consumer was not told about or does not know of. If such charges are not disclosed to the consumer, the trader will have breached the contract and the consumer may claim for damages.
In simple terms, the trader makes a contractual promise that there are no charges or claims over the goods other than those disclosed. If the consumer is unaware that goods are subject to any charge, and the trader has not told them of any charge, they can expect the goods to be free of any charge. They will have protection if this is not so. That protection already exists under the current law and Clause 17(2) retains it. By making this a term of the contract, subsection (2) also provides a means of access to compensation for the consumer.
Clause 17(2) potentially goes further than the amendment in that it requires the trader to disclose all outstanding claims or charges. The amendment would require disclosure only when the claim or charge might impact on the consumer’s enjoyment or use of the goods or cause them financial detriment. I worry that this could be a potential source of dispute between the consumer and the trader. It is not clear how the consumer could demonstrate that a particular claim should have been expected to impact on their enjoyment or finances. The approach that is already in the Bill in Clause 17(2) is simpler; it is sensible; and it provides stronger protection to the consumer.
I want to respond more specifically on logbook loans, as addressed in Amendments 3, 5 and 56. One market where there are examples of consumers buying goods that have other claims to them is that of logbook loans. Across the Government, we share the Opposition’s concerns about the risks to consumers from such loans. The Government believe that people should be able to borrow and have the tools to make an informed decision about which credit products are right for them, but consumers should be confident that they will be treated fairly when things go wrong.
As the noble Lords will be aware, responsibility for consumer credit regulation, including logbook lenders, transferred from the Office of Fair Trading to the Financial Conduct Authority on 1 April. Consumers are far better protected under the stronger, well resourced FCA regime. The FCA defines logbook loans as “higher-risk activities” and, as a result, lenders face closer supervision. Moreover, logbook lenders are in the first phase of firms to require full authorisation, with the FCA thoroughly scrutinising firms’ business models and compliance with its rules.
It is important that consumers are aware of their rights before taking out logbook loans. The FCA therefore requires logbook lenders to provide a pre-contractual explanation to borrowers of their rights before any agreement is signed. On the noble Lord’s point about logbook lenders and affordability tests, logbook lenders are required to meet the standards that the FCA expects of lenders, including making affordability checks. These rules are binding, and the FCA can take action where wrongdoing is found.
Logbook lenders are subject also to the FCA’s high-level principles, including the overarching requirement to “treat customers fairly”. The Government have ensured that the FCA has a wide enforcement toolkit to take action where its rules are breached. There is no limit on the fines that it can levy and, crucially, it can force firms to provide redress to consumers.
The FCA actively monitors the market. It has flexible rule-making powers and, if it finds further problems, it will not hesitate to take action. Indeed, the FCA has said that it is,
“putting logbook lenders on notice”,
and that its new rules give it,
“the power to tackle any firm found not putting customers’ interests first”.
In addition to this robust action from the FCA, I confirm that the Law Commission has agreed to a request from Treasury Ministers to look at how best to reform the Bills of Sale Act. This legislation underpinning logbook loans is old, lengthy and incredibly complex, and affects businesses as well as consumers. Evidence suggests that around 20% of bills of sale are used by small businesses rather than individual consumers. As a result, the Government believe that the Law Commission is best placed to undertake a thorough assessment of how to bring this complex, arcane and wide-ranging Victorian legislation up to date. This project is now under way and the Law Commission launched its call for evidence last week.
The Government believe that this package of action will fundamentally strengthen protections for consumers using logbook loans. I therefore ask the noble Lord to withdraw his amendment.
Lord Stevenson of Balmacara
I thank the Minister for her comments. On the first point, about the third party, I take her point that Clause 17(2) covers the issue; I understand that. I would like to read what the Minister said in Hansard before I make up my mind on this, but my worry is that it still leaves the situation that anyone who wishes to take advantage of Clause 17(2) has to raise an action in order to recover the costs and damages that they may have lost. We would rather have the thing eliminated altogether so that it just cannot take place. That is the difference between us on this. We have cross-read Clause 17(2) carefully but still feel that it was right to try, within this overall package, to focus on the bill-of-sale techniques and legislation that have been used. That was the basis of our understanding, but I note what the Minister said on that point.
I am glad that the Government share our concerns about logbook loans. They are a really unpleasant way of offering high-cost credit. I am conscious that the responsibility now lies with the FCA on this. However, I make the following points. Simply passing responsibility to that body is not necessarily the same as cleaning up this area. There will be a time lag before the FCA gets around to this and it is quite interesting that the changes that have been made in the area of payday lending have been brought to the front of the FCA’s enormous workload—it has a lot to do to get itself up to speed in so many areas across our financial services sector—really only because of the insistence of this House and, therefore, of the Government. There had to be a decision, for instance, on capping payday loans by January 2015 and that has of course produced action on a magnificent scale. It is not quite there yet, but it is moving in the right direction. While I understand the point, therefore, I still do not think that it would be sufficient to get this issue addressed very quickly.
The problem, on which I think we agree, is about the use of these archaic bills of sale. While I accept that the Law Commission has a good record in this area and it might well be appropriate, there is a time problem with this. The Law Commission is not noted for rushing into action on these matters and, although I in no sense wish to impugn its great work, we are probably talking about three or four years before we get an outcome on that. Are the Government really saying that they are prepared to sit back and allow this to be dealt with by an FCA that, although it has a concern for consumers, as the noble Baroness said, also has a responsibility, which it insists on parading every time you talk to it, to ensure that markets are working efficiently? These two things do not necessarily sit well together. Here is a case with clear consumer impairment. It will not be to the benefit of many consumers to know that the market is working well.
Nevertheless, I accept the Minister’s point on that. I understand that we are basically moving in the same direction. The commitment to ask the Law Commission should result in changes, and it is clear from the evidence that I have already produced that we will be looking forward to legislation coming through. I am worried about the timetable, so we will reflect on this. In the mean time, I beg leave to withdraw the amendment.
Baroness Jolly
My Lords, I am very grateful to Professor Hugh Beale, an eminent legal academic, for his view that the Bill required greater clarity on our intention that there should be no right to terminate a contract for the supply of digital content when the quality rights are breached. It is important to put this beyond doubt to provide the necessary clarity for consumers and business.
The amendments, which are government amendments so they are an improvement that we have made to the Bill, seek to make that explicit by adding a new line into Clause 42 making it clear that there is no right to terminate the contract for digital content when the quality rights are breached. The related amendments in Clause 19 for goods and Clause 54 for services ensure consistent terminology across the goods, digital content and services chapters.
The amendments are technical changes but I realise that the underlying issue has not been fully debated. We will be returning to the substantive point about whether there should be a short-term right to reject digital content when we debate the amendments to Clause 33. If there are no questions at this point, I beg to move.
Lord Stevenson of Balmacara
I thank the Minister for introducing these very technical amendments. We have no objection to them as they are drafted, we want to get that on record, but she has made it clear that Amendment 14, and to some extent Amendment 17, bearing on matters relating to digital content in Chapter 3 of the Bill, contain within them substantive issues that we will want to readdress. I was grateful to note her comment that the fact that we will not oppose these amendments as they go forward at this stage does not rule out the possibility of coming back to the substantive point at a later stage.