§ 3.26 p.m.
§ LORD SHEPHERD
My Lords, I beg to move the Second Reading of this Bill. It may be considered appropriate that this radical Bill providing reform of the law of consumer credit should be introduced in this House. Not only did the Committee which considered the whole question include the noble Lord, Lord Hirshfield, but it was chaired by a distinguished 1148 Member of this House, Lord Crowther, whose untimely death has prevented him from seeing the fruit of his work in this field and whose comments on the Bill to-day would, I am sure, have been wise and most helpful. It was also this House that called attention to the Report of the Committee on Consumer Credit in 1972, in a debate initiated by my noble friend Lady Phillips. The reply to that debate—a very long speech, if my memory is correct—was made by the noble Earl, Lord Limerick, then speaking for the Government. He is, I believe, leading for the Opposition this afternoon.
As the House will know, the last Administration introduced in another place a Bill to give effect to the Crowther Committee recommendations. It had a period in Committee but the General Election came about and the Bill may well have died a natural death. We on this side of the House are pleased that it has fallen to us to take it through Parliament. Therefore one can readily claim that this is a Bill with all-Party support.
Quite early in its discussions the Crowther Committee came to the conclusion that it could not look at the field of consumer credit in isolation but that it had to look at certain areas on a wider basis, particularly the law relating to the taking of security. After due consideration of the problems, it recommended two Acts of Parliament—one which would deal mainly with taking security in all credit transactions, both business and consumer, and the other a special consumer lending Act. This Bill represents the latter. We are not, at the moment, dealing with the wider questions of security in general because the subject deserves much wider study before decisions are taken. In particular, we think that the social consequences of allowing the easier taking of security in consumer transactions needs most careful consideration. Furthermore, a reform along the lines suggested by the Committee would generate a major change in commercial procedures which, again, needs to be considered carefully. This further area of study will, we consider, be clarified once the present Bill is law which will be able to identify any anomalies that may arise. So far as can be seen at present, there is nothing in the Bill that would hamper any future reform of the law of security in general. Thus 1149 we are dealing in the Bill purely with consumer credit transactions.
Credit is an emotive subject. Polonius's advice of "Neither a borrower nor a lender be" is built into our cultural and moral background, yet borrowing and lending there is and will be and, as the Crowther Report concluded,It makes a useful contribution to the living standards and the economic and social well-being of the majority of the British people".It is therefore important that legislation controlling consumer credit be properly constructed.
As this Bill adopts a different approach from previous Acts it may be helpful if I dwell for some time on the principles on which it has been constructed rather than take the House through the Bill clause by clause in the traditional Second Reading manner. Past legislation has been based on the principle of finding a nail and then hitting it. Thus, since 1603 there have been various Acts regulating the activities of pawnbrokers, a form of lending where protection was felt to be very necessary. Since 1900 the activities of moneylenders have been controlled. In 1938 a further area of credit was controlled with the first Hire-Purchase Act, which will always be associated with Ellen Wilkinson. One result of this piecemeal approach has been that as soon as activities in one area have been controlled, lenders who wished to operate outside the law have moved to another area, leaving legislative control only over those who have been happy to operate within the law. The fault has been that each piece of legislation has been directed at a particular institution or at a particular type of transaction.
The first new principle of this Bill is that it is directed not at a class of persons or type of activity but at an activity as a whole—the provision of credit. Persons who wish to deal in this activity will be covered by the measure, no matter what type of credit they are providing, the name they call themselves or the way in which they transact their business. Another result of the piecemeal legislation in the past has been that the protection given to debtors has differed according to the lender providing the credit, even though the transaction might have been the same as provided by different lenders. For example, if a consumer enters into a hire-purchase 1150 contract on the doorstep he is given, by law, a period in which to reconsider his decision—but if he enters into a personal loan on the doorstep he is not. If he considers his agreement to be extortionate he can get it reopened by the courts if it is made with a registered moneylender but generally not if made by any other class of lender. This is indefensible. The Bill takes the line that it is the circumstances of the case and not the status of the lender that should decide whether or not protection should be given in any particular case. Under this Bill all credit transactions, no matter what their form, taking place in similar circumstances, will get like protection.
Another result of angling the law towards institutions rather than the transaction has been that competition has been stifled. Pawnbrokers could compete with each other on equal terms, because they were all governed by the same legislation. So could moneylenders compete against each other. So could banks. But they could not effectively compete against each other because they were governed in differing ways; their transactions, although the same in form, had to meet very different legislative requirements. This gave some lenders a competitive advantage over others. Because the Bill treats all lenders alike, we hope that all lenders will be able to compete against each other—which can only be in the consumers' interest. Even if they could compete, borrowers would not have been able to evaluate the different offers. There is no requirement on a creditor to state the price and no incentive for him to do so. If one is buying a suit or a pound of fruit, one can compare the offer with that of another shop. One can see whether the fruit is good or bad, ripe or unripe. Sometimes one can see whether the suit fits or not.
Not so with credit, where there is no tangible object to look at or to examine. One can compare the price of the various offers of fruit—they will all be so many pence per pound. Not so with credit, where there is no standard way of quoting a price and, indeed where legislation sometimes requires offers to be quoted in different ways. It is as if one fruiterer could quote in pence per pound., another in pence per kilogram, another 1151 in old pounds, shillings and pence, plus something extra for the wrapping! A basic principle of the Bill is therefore that henceforth the consumer should be able to get full and complete information about the transaction he is considering and the transaction he has entered into, set out in a form which enables him to compare one offer with another. This is the basic "truth-in-lending" provision. Past legislation has tended to lay down all the details to be observed. Thus the Pawnbrokers' Acts lay down how a pawnbroker must keep his books and the Hire Purchase Act lays down the exact wording of certain statements to go into agreements. The result has been that as business methods have legitimately changed, the law has become out of date. Yet it cannot, as your Lordships know, be easily changed. The classic case is that of the Moneylenders Acts which are so unsuitable for modern-day conditions that Parliament itself in 1967 provided a way whereby those most hampered could escape the Acts' provisions.
The Bill does not adopt the approach of putting all the minute detail in the Bill, but sets out the principles and framework of protection, leaving the detail to be filled in by regulations, which can be easily altered to meet changing circumstances. No lender should in future be able to plead that he cannot work under the measure because it is outdated and use this as an argument for complete exemption. Conversely, a scheme not covered by the regulations, but which it would be in everyone's interest to allow, can quickly be catered for. Past legislation does not always recognise that there are separate stages to each transaction—before the consumer enters into it, once he is in it, and then later perhaps when unable to meet his obligations—and that protection is needed at each stage. The Bill looks at each stage and provides appropriate protection for that stage.
Similarly, past legislation has seldom recognised that the credit industry does not consist of creditors alone but also a vast range of brokers, debt counsellors, debt collectors, debt adjusters and credit reference agencies, all playing their part in a very sophisticated industry. All these activities are tied up with one another and the Government consider it essential that 1152 they all be regulated by the Bill. Only in this way can adequate protection be provided. Here it is relevant to say that not only does the Bill implement the consumer credit recommendations of the Crowther Committee but also an important one of the Younger Committee on privacy. One of the ancillary activities in the field of consumer credit is that of credit reference agencies. There may be justifiable objections to such agencies, but two important aspects must not be forgotten.
First, use of credit reference agencies can prevent credit being extended to a consumer who cannot carry it and who would fall into trouble if it was extended to him. Secondly, the intelligent use of credit reference agencies by creditors should minimise reliance on security. There is less chance of improper action being taken on an unsecured loan than on a secured one. Provided they are properly controlled, therefore, and that proper regard is paid to the important privacy aspects, credit reference agencies can play an important part in the credit field. Not only does the Bill subject them to licensing and control by the Director General of Fair Trading, but it implements the important recommendation of the Younger Committee that persons reported on by such agencies should have an opportunity, if they wish, to inspect their files and to correct any mistakes or errors in them.
Lastly, I would mention three important areas of the Bill. The first is a long-stop provision that, if all else fails, the consumer should be able to obtain protection. Under Clauses 136 to 139 the court is given power to re-open extortionate agreements. At present a court's powers in respect of what are known as "harsh and unconscionable" agreements are limited. It can only re-open agreements made by registered moneylenders, and where the rate of interest is less than 48 per cent. the onus is on the debtor to prove that the rate of interest is harsh and unconscionable. This is a heavy burden on him, and we have enlarged the protection in two ways. In future the court will be able to re-open any agreement made with an individual, and the onus of proving that it is not extortionate will always be with the creditor under the provisions of Clause 167. Secondly, to help enforcement of the Bill and to 1153 ensure that persons really determined to harm the consumer are not able to enter the industry, or can be ejected from it when necessary, there is a licensing system. This will cover many people who are not required to be licensed by the previous licensing system in the industry, but we consider this a price to be paid for a stable and efficient industry.
The Bill differs from the one introduced by the previous Administration in that an appeal from the licensing decisions to my right honourable friend the Secretary of State for Prices and Consumer Protection is provided in Clause 41. The refusal, revocation or suspension of a licence may result in someone losing his livelihood, and we think it right and proper that at the end of the day the Secretary of State, who is responsible to Parliament, should look at these decisions. We contemplate that when an appeal is made to her the Secretary of State will appoint assessors to hear the appeal and make recommendations to her. This would be an administrative act, and is not in the Bill. We envisage that such a system would give flexibility—for example, the number of assessors might be varied with the seriousness of the case—and would give confidence that the matter was being fully reconsidered. A further appeal from appeal decisions on points of law is provided in Clause 42.
Although this is a United Kingdom Bill, it would not be right for all hearings to be held in London. It is therefore our intention that licence hearings or appeals to the Secretary of State will in general be held in Scotland or Northern Ireland if the applicant or appellant has his principal place of business in Scotland or Northern Ireland. This will be done by administrative action to give flexibility; for example, English and Scottish applicants may wish to make joint representations on a licensing issue at a mutually convenient venue. A person who is aggrieved over a decision following an appeal to the Secretary of State may appeal on a point of law, and here the Bill provides (in Clause 42) that, irrespective of where any earlier hearing may have taken place, which court should deal with an appeal on a point of law should be determined by where the appellant has his principal place of business or, if a company, where it is registered. 1154 Thus, even if a Scottish applicant has opted to have his earlier hearing in England, any appeal on a point of law would go to the Court of Session.
To ensure that the measure is kept under review, up-to-date and enforced, we consider, as earlier recommended, that there should be a body charged specifically with these duties. The main change in the Bill from that introduced by the previous Administration is that Part I gives the Director General of Fair Trading these duties, whereas the previous Bill gave them to an independent Consumer Credit Commissioner. The Crowther Committee Report was published before the appointment of the Director General, and it is an open question whether, if the Director General had been in post at the time when the Committee were considering the matter, they would have recommended that he should have these duties. The main argument against such a transfer of functions is that an independent Consumer Credit Commissioner could have been seen to be solely responsible for consumer credit in a way that the Director General, with his other duties, cannot. This can be overstated, and we have always been in favour of the Director General doing the job, as was pointed out in another place when the previous Bill was proceeding through its Committee stage.
Consumers might find it confusing to have two bodies dealing with two sides of the same question; the weights and measures authorities might find it difficult to have to deal with different masters in respect of each Act. To combine the two offices produces a desirable rationalisation in the recruitment and use of staff. We have no doubt that the Director General will be able to do the job in every aspect as well as could an independent Commissioner, and that to have him doing it is desirable in every way. I would stress certain of the Director's functions under the Bill. He will be responsible for administering the licensing system, adjudicating on cases arising under it, superintending the working and enforcement of the Statute and, importantly, keeping the Secretary of State informed about developments in the credit field so that we never get into the position where the law in this field becomes out of date. It will be an 1155 important addition to the Director General's duties.
Lastly, I should like to say something about small agreements. We believe that all agreements, whatever their size, should be covered by the Bill. Indeed, it is in these small transactions that protection is most needed. But it would not be right to impose full protection if by doing so one killed an important area of credit from the consumer's point of view. Thus we believe that small credit agreements for the purchase of goods or services—not cash loans—should be exempt from the documentation and the cooling-off provisions. Not to exempt such small agreements from the provisions would kill the check trade, the tallyman trade and much of the mail order business, which would not be in the consumer's interest. The Committee of another place on the previous Bill reduced this to £10, but on re-examination we consider this to be too low a figure. But so that "truth in lending" may apply, we do not exempt such small agreements from the disclosure requirements of Clause 55. And it must be stressed—for there has been much misconception on this—that such exemption is limited to certain areas and does not apply to cash loans.
I realise that in this survey of this important Bill I have only sketched in lightly the main provisions, and have omitted reference to a considerable number of its detailed provisions; but a statement of the principles upon which the Bill has been constructed may help the House in its consideration of this measure in Committee, and I have no doubt that my noble friends Lord Jacques and Lord Wells-Pestell will be able to help your Lordships at that stage. Over the past few years there has been a large growth in consumer credit. The consumer-orientated society makes available to the consumer many goods which make his life more pleasant and enjoyable. Consumer credit is the means whereby he can enjoy goods and pay for them out of current income. Provided that it is properly used, that there are no abuses and that it is within his means, the provision of consumer credit thus materially adds to the consumer's living standards. We hope that this Bill will ensure a complete framework within which consumers can take credit and creditors can grant it with confidence and ease.
1156 My Lords, as I said earlier, this is a Bill which I believe commands all-Party support. However, it is very complex—I suppose as a consequence of the nature of the subject we are considering. So far as I and my noble friends are concerned, if at any time we can assist, either in your Lordships' House or outside, in dealing with this complex matter, we shall be only too ready to do so. With those few words, I hope that the House will now give this Bill a Second Reading.
§ Moved, That the Bill be now read 2ª.—(Lord Shepherd.)
§ 3.49 p.m.
§ THE EARL OF LIMERICK
My Lords, in the circumstances of its reintroduction I can offer a warm and unreserved welcome to this Bill. I think, therefore, I can be considerably briefer than I was in replying to the noble Baroness, Lady Phillips, in June, 1972. I should first like—and it is agreeable to do so—to congratulate the Government on their prompt action in reviving the Bill, with minor amendments, most of which—or some of which, at any rate—were foreshadowed at the Committee stage in another place. I should also like to congratulate the noble Lord the Leader of the House, first on the very clear way in which he introduced this Bill to us and, I think, no less on his having secured the introduction of the Bill in this House.
I am glad the Bill has been introduced here essentially for three reasons. The first is that it has already been looked at in another place; admittedly its composition was slightly different but they have had a chance to express a general view on the philosophy of the Bill; second, it comes at a time when we are not over-burdened with work and we are very glad to see it and third, and not by any means least, is the number of Members of this House who are eminently well qualified to speak to this Bill and to examine its provisions. Evidence of this is seen in our speakers' list to-day. I am glad also to echo the tribute paid to the late Lord Crowther and to his Committee for their very imaginative work, and I should like to add my own tribute to the enormous amount of work done in the Department of Trade and Industry to produce from this springboard a workmanlike Bill and I believe a good Bill, one which, for all its complexity, 1157 is written in language which is generally comprehensible.
This Bill simplifies Statute law by repeal of many measures: essentially the Pawnbrokers Act, the Moneylenders Act, the Hire-Purchase Act—a total, if I am right, of over 230 sections of legislation. It thereby recognises the essential unity and now the overlapping of credit business. I certainly agree with the judgment that it is right to take this Consumer Credit Bill on its own and to defer judgment of the much more complicated matter of the loan and security proposals. The Bill brings new protection for the consumer and it was one of several measures introduced by the last Administration to this end, especially attacking the concealment of the real cost of credit. Truth in lending is a vital part of the provisions in front of us. This I think is proved by the postbags of Members of Parliament and Ministers, correspondence often revealing misunderstandings rather than sharp practice.
But the complexity of the new law, which is exemplified perhaps by the fact that the definition clause, Clause 184, extends to no less than nine pages, means that an enormous amount of consultation has been required in bringing it to this stage. By the time the Bill was introduced last December there had been tremendous discussion both before and after the publication of the White Paper which preceded it, and this I hope will be reflected in the general acceptability of its provisions.
I should like to say something about the Bill itself. First, in Part I, as the noble Lord, Lord Shepherd, has pointed out, the main difference is the task given to the Director General of Fair Trading to act as the credit commissioner. This is the only what one might term political change made in the Bill—I do not mean Party political: this is an act of judgment. I see nothing sinister in this. We are always open-minded about the rights and wrongs of the one course or the other.
The noble Lord summed up the arguments here very fairly. In favour of this change is the better work load and the avoidance of duplication. There is one anti-argument which he did not mention which I hope will be well debated. Although he mentioned the possible loss of public identification by having somebody 1158 with a different name, what he did not mention was the occasional conflict that could arise with a Director General responsible, on the fair trading aspect, for the interest of the lenders as well as of the borrowers. In this way the Director General may find himself arguing with himself at a certain stage before the debate becomes public. I think there might be a compromise here and it is a matter on which we may propose Amendments to the Bill, should they be required, that there should be a designated deputy in the Director Generals office who could be publicly known to have this responsibility and to be answerable for it We would like to study what is said later on and then see what Amendments may be required.
In Part I I welcome the affirmative procedures introduced by Clause 2(6), and the conferment on the Director General of Fair Trading of additional functions under Clause 2(1)(a). The noble Lord, Lord Shepherd, gave us a very careful account of the changes in the appeal provisions. I have just one question on that. It seems that before an appeal on a point of law can be made it will first be necessary, for the procedure of Clause 41, of an appeal to the Secretary of State, to be gone through. I do not think that this is necessarily wrong but I should like to have confirmed that if it appears that the Director General has misdirected himself on a point of law this can be picked up only after exhausting the appeal to the Secretary of State. I should also be pleased to have verification that the procedure for reporting to Parliament is substantially unchanged. Clause 6 of the previous Bill laid this down in some detail. Now there is reference in Clause 5 to an addition to the report to be made annually by the Director General of Fair Trading. No doubt this picks up provisions in the Fair Trading Act, and it might be helpful to know how these will come before Parliament.
Turning to Part II, there have been considerable misgivings on the inhibiting effect of the clauses dealing with ordinary bank overdrafts, Speaking as one who has, with the exception of the last two years, been in a bank since 1958—though never as a clearing banker—I have some natural sympathy with the plea to cut formalities. No doubt we all thought we could recognise the elephant of a 1159 clearing bank overdraft walking down the street, but the other credit operations engaged in by clearing banks as well as by other finance companies makes some of the distinctions rather difficult to draw. I do not wish to take any detailed points this afternoon or to say more than that I am sure we shall see some Amendments proposed in this area. I shall listen carefully to the arguments to see whether changes to the Bill are reasonably necessary here.
Part II as a whole shows evidence of substantial redrafting. The changes seem to me to be improvements. I follow the reasons for the differences and find the new versions generally clearer, especially the new definitions of running-account credit now set out in Clause 10, and of credit tokens now separately dealt with in Clause 14, as well as multiple agreements in Clause 18. But the core of this Bill in many ways is to be found in the truth in lending provisions to be set out in regulations made under Clause 20. This is a very complex matter but is quite essential for the purposes of the Bill. I note that subsection (3) of what was Clause 19 has disappeared and now appears in a different form in Clause 9(3). I should like to verify that this has the same overall effect on the way in which the vital calculations are made on this truth in lending question. I think it is so but would welcome the assurance that it is. I am raising a number of detailed points of most of which I have given notice to the noble Lord, Lord Jacques. If he is unable to answer them this afternoon I certainly shall not press him. I can bear testimony to the excellence of the inspiration which is close at hand.
Moving to Part III of the Bill, I have three questions. The first concerns the period of validity of licences. Clause 22 is studiously vague on this point. It refers to:… such period as the Director thinks fit or, … indefinitely …I think it would be helpful to have an indication of what is contemplated for the generality of the validity of licences which are issued. My second question concerns the disappearance of the old Clause 22(3) excusing building societies from obtaining licences for the purpose of what is now Clause 16. I suspect this is a technical 1160 matter and perhaps we shall have an explanation of it in due course.
My third question (and probably the most substantial) concerns the offences referred to in Clause 39. In the former Clause 39 there were four offences, and the one that is missing from this Bill was 39(4), which made it an offence to give false information to the Commissioner in connection with the application for a licence. This seems to me to be a very offensive thing to do, and I should like to know why it has been dropped. In Clauses 48 and 49 we have some new definitions concerning canvassing and we have abolished the abuses which made this necessary. Obviously in such an area there is the danger of creating a multitude of unwitting offenders, but this is a difficult subject and I think that perhaps we should await the reactions of those who are likely to be affected.
In Part V, I am delighted to see the restoration of the £30 credit limit. This seems to be the right figure. Parts V, VI and VII impose substantial new and detailed obligations on lenders. I believe these are generally accepted by those concerned as being reasonable for the purpose of the Bill, but obviously time will be needed to adapt to their requirements. The Bill adopts a perfectly normal formula for appointed days. The most significant of these is the principal appointed day, referred to in Schedule 3. For the reassurance of many people who are affected by this, I think it would be helpful to have an indication of the time-scale which is in contemplation in investigating at least this principle of the appointed day in Schedule 3.
Part V deals also with cancellations. I have one point to raise on Clause 71 which could produce what at first sight might be an odd result, in that a debtor may be required by partial cancellation to repay part only of the money advanced, creating in effect a new transaction which one or both of the parties may not have desired had they started in that way. It seems to me that the right to cancel should involve a full refund and returning the parties to the transaction as nearly as may be to the status quo ante. This is a point to which perhaps we might return, if only for clarification.
The later parts of the Bill are technical and complex and perhaps it would be 1161 better to discuss them in Committee rather than on Second Reading. Therefore to me all the more welcome is Clause 183, which introduces Schedule 2. I think I recognise the antecedents of Schedule 2, which embodies what seems to me a thoroughly good idea and one that should be helpful to an understanding of this complex area.
The questions I have raised—and I repeat that I do not necessarily expect answers to them this afternoon—I hope have not detracted from the general welcome I extend to the Bill. It is a constructive Bill both for credit givers and credit takers. It will introduce some new certainty of rights into the area of measurement of costs—an area where previously there was uncertainty—and where, as the noble Lord, Lord Shepherd, pointed out, no valid comparisons could be made. This is in every sense a non-Party measure, as its history shows. No doubt it will undergo some amendment in this House; but we welcome it unreservedly and will help to speed it to the Statute Book.
§ 4.5 p.m.
§ BARONESS SEEAR
My Lords, I should like to join in the tributes that have been paid to the late Lord Crowther for the great amount of work that went into his Report, upon which this, in substance, non-controversial Bill is based. I intend to speak very briefly this afternoon because, as the noble Earl, Lord Limerick pointed out, most of the issues to be raised are Committee points rather than matters of principle such as would be discussed in a Second Reading debate—and all the more so since the measure has all-Party support.
Changes have taken place since the Bill was introduced in another place by the previous Government and, so far as I can see, the changes are not in any way detrimental to the purposes of the Bill. We recognise that there are certain difficulties, as was referred to by the noble Earl, Lord Limerick, in the dual role, so to speak, of the Director General of Fair Trading. I had not previously heard the suggestion that the difficulties might be partly overcome by giving him a deputy who could take the opposite point of view. This seems to me to point to a slightly dubious result where, instead of arguing with himself (as many of us do from time to time) he might well be 1162 arguing with his subordinate, and this might well be tiresome both for the Director and his subordinate. However, there has not yet been time to give detailed thought to this and I mention it in passing.
Perhaps I may mention other minor matters. For example, an improvement has been made in respect of the rather curious restrictions that were placed originally on the use of the telephone in the previous Bill. These have now been removed and therefore what has become the most convenient method of transacting business, even if not always the safest, is now restored in this Bill.
There are a small number of general points I should like to make. Perhaps not surprisingly, I should like to draw attention to Clause 25 referring to the conditions under which a would-be licensee may get a licence—or rather the conditions under which a licence may be withheld. I hope that considerable publicity will be given to Clause 25(2)(c) which lays down that a person may be stopped from becoming a licensee if he has practised discrimination on grounds of sex, colour, race, et cetera. This is not dragging in the question of sex discrimination by its short hairs, so to speak. In another place there has been a great deal of comment about discrimination in financial matters, for instance, which has operated adversely from the point of view of women.
We know that there are various reasons—and no doubt they are excellent—why the Government are not going to produce a sex discrimination Bill quite so early as we had hoped would be the case with the previous Government. But the fact remains that these matters will not now be dealt with as speedily as otherwise might have been the case. The fact of this prohibition of discrimination on grounds of sex, if wide publicity is given to it, could mean that the remaining discrimination in this area—and I stress "remaining" because I know that such discrimination is practised by only a very few concerns—would soon disappear, provided that those firms still practising discrimination realised that it would be very much to their advantage to stop doing so. If this fact were widely known it would speed up a change which would be of considerable value to many people; so I hope that publicity 1163 will be given to this clause, which otherwise might be lost sight of.
As the noble Earl, Lord Limerick, has said, it is the clauses dealing with truth in advertising in connection with credit which seem to me of major importance. I should like to urge that our interpretation of what is required in truth in advertising in credit matters, or all advertising matters, should undergo a drastic review. A good example is to be found in advertising in connection with cigarettes and their adverse effects on health. There is also a strong obligation on advertisers, particularly credit advertisers, to point out clearly the disadvantages under which the intending borrower may borrow. In the past, it was far too easy to fulfil the requirements of the law by putting in small print what the disadvantages were. But they need to be spelt out and made extremely plain. There should be an obligation on the advertiser to leave the borrower in no possible doubt about the disadvantages from which he may suffer in the proposed transaction. That would be a considerable change. In the advertising field in the past, the most one hoped for was that the advertiser should tell the truth, not that he should also be prohibited from concealing unfavourable facts. That is what we want to get into this legislation and, indeed, all advertising.
At the risk of slight digression, may I make a point which does not come strictly under this legislation? The Government might well start in their own field where they do have some control. We have all seen large advertisements pressing people to buy National Savings Certificates. At the present time anybody who finds himself in financial difficulties, or who wants to get ready cash, may be strongly tempted to get rid of his National Savings Certificates, only to find that if they had not completed the five-year minimum period, they would attract a "generous" 2½ per cent. interest rate—in a year in which inflation has been at 13.2 per cent. If that is fair trading, it is not as I understand the term. I agree that I have used the opportunity of speaking on this Bill to make the point, but it is one which needs to be made. Credit, after all, has to do with money, and so have savings.
Regarding advertising, may I make a plea that in connection with credit the 1164 Government should consider going even further than this Bill suggests? I believe that at the present time many people are in a state of great confusion on financial matters—and no wonder! We are living in a period of unprecedented inflation in this country—and that is not just an adjective; it really is unprecedented—and therefore people do not know how to cope with it; it is a situation with which they are unfamiliar. In a situation of inflation as rapid as we are experiencing to-day a great many people regard it as sensible to buy as much as they can now before further price increases. This tempts them into taking credit beyond that to which they can wisely commit themselves. Anybody who is in close touch with young couples, for example, knows that a great many are now landing themselves with a degree of debt of one kind and another which causes great anxiety, stress and problems. In the present circumstances, there should be more general education about credit and finance in a situation of inflation for people who are seriously confused regarding the best action to take with prices rising as fast as they can. How wise is it for them to accumulate a debt, the size of which in previous years would have been regarded as of monstrous proportions and which is going to be around them for years and years to come? I ask the Government, while thinking about this measure, to consider whether there is anything arising out of it which they can do to help people clear their minds about the commitments into which they are entering. With that, my Lords, I wish to support the Bill.
My Lords, may I be permitted to ask the noble Lord, Lord Shepherd, what is going to happen to the thousands of moneylenders who exist to-day? Will they come within Clause 26 of the Bill which says:Regulations may be made as to the conduct by a licensee of his business, and may in particular specify—Is that clause going to take the place of the famous Section 6 under the Moneylenders Act 1927?
- (a) the books and other records to be kept by him, and
- (b) the information to be furnished by him to persons with whom he does business or seeks to do business, and the way it is to be furnished."
§ LORD SHEPHERD
My Lords, I have no doubt that my noble friend Lord Jacques, who will be winding up for the Government, will be happy to answer the noble Lord's question. I think we should now allow the noble Viscount, Lord Amory, who is next on the batting list, to have the attention of the House.
§ 4.16 p.m.
§ VISCOUNT AMORY
My Lords, I thank the noble Lord, Lord Shepherd. I am glad that it does not fall to me to answer the very difficult question which the noble Lord, Lord Meston, has just asked. This is a sensible and timely Bill. I was amused at the reason the noble Baroness, Lady Seear, mentioned had been advanced for the appointment of a Deputy Director: that he might hold views different from his boss, the Director. I recall that when I was a Minister I always had the good fortune to have two ministerial assistants, and it shows what a naive and innocent character I am that it never occurred to me that both had been appointed by the Prime Minister because he realised that they held views different from my own.
My Lords, I propose to limit my remarks to one aspect of the regulations applicable to current account lending by the clearing banks, about which I feel some anxiety and about which I hope the noble Lord, Lord Jacques, when he winds up, will be able to give me some assurances. I have an interest of a sort to declare: that for a number of years I was a non-executive director of one of the clearing banks. Now I am only a customer and a modest shareholder.
With l2½ per cent. Scottish blood, I have always been a reluctant lender and a timid and cautious borrower. The criticisms I want to make are not of a Party political nature. I realise that this Bill was introduced in another place by the last Government and is now introduced in this House with only minor amendments to the earlier Bill. I realise, too, that during the Committee stage in another place a number of assurances were orally given by the then Ministers, some of which have been given effect to in the present Bill, and some of which have not. The suggestions I want to make are not made primarily or mainly in the financial interests of the banks, but are made in the interests of their 17 million customers.
1166 Currently the banks, as a result of the high level of interest rates that derive from continuing inflation, are earning relatively high levels of profits, though in the light of the escalating volume of credit and inflationary risks attaching thereto, I am doubtful whether that level will in fact prove to be excessive. Some of the detailed requirements which are imposed by this Bill will entail the use of more manpower, which of course means higher costs. My main concern that I want to have assuaged is lest some of these provisions may lead to a deterioration in the service to bank borrowers who at any one time amount, I believe, to about 6 million people. The system of temporary overdrafts and loans on current accounts in force in British banks is a unique and distinguishing feature of our banking system and is the envy of customers in other countries. Flexibility and informality are its characteristics. I am not one of those who believe that borrowing should be made too effortless a performance, for the reasons that the noble Baroness, Lady Seear, has mentioned. When the economic history of this period comes to be written, I doubt whether the criticism will be made that borrowing for short-term consumption has been dangerously inadequate. Hire-purchase for immediate consumption, on what is called the "Never, never" principle, can be an insidious temptation, particularly I think to the young. I am sure it would have been to me if it had been available at that long distant time.
My Lords, it is appreciated that the aim of this Bill is to prevent abuses which have been, and it may be still are being, practised on borrowers by certain institutions, including some that have grown up very rapidly over recent years. This, of course, is a good aim, and one of which we must all approve. I do not believe, however, that the English and Scottish clearing banks have ever been accused of indulging in undesirable practices of this kind. Throughout the Crowther Report, I think, no criticism was levelled at them on that score. Clearly, it is a very difficult task to design one pattern of controls that will be equally appropriate for all the different kinds of lending. If there are defects in this Bill it seems to me that they come from the attempt to include in one set of regulations all the different kinds of lending.
1167 The regulations are mainly designed, I think it is fair to say, to cover a single borrowing for a specific purpose, and do not lend themselves so well to what I will describe (though it sounds an odd expression) as the "varying continuity" of overdrafts or current account loan lending. I should like at this point to make it clear that I gather the clearing banks agree about what are known as personal loans—that is to say, loans which are made for a stated period and on which interest is calculated not on varying day-to-day rates but at a fixed rate on the sum initially lent. They are in agreement that that type of loan falls properly into the categories of lending covered by the provisions of this Bill. It is in respect of the much more common forms of borrowing, namely, overdraft facilities or temporary loans on current account, that they believe that some harm to customers may result.
My Lords, I do not wish to-day to go into detail on a number of points in which the provisions seem to me, certainly at first sight, inappropriate and rather top heavy for the type of service to which I am referring. Those points are more appropriate to the Committee stage, when I should like to bring up a few of them. But I should like just to indicate now one or two points to illustrate what I mean and where it seems to me the shoe is likely to pinch. First of all, take Clauses 8 and 10. The impact on banks and their 17 million customers is far from clear. What kinds of overdrafts, for instance, will be caught, and what kinds will not? Then the word, "credit" can be construed in two different ways, to mean either the credit limit or the actual amount of borrowing outstanding at any one time. Is each cheque a separate regulated borrowing in this context? The whole concept, my Lords, of a regulated agreement seems rather foreign to a running account upon which cheques fall to be drawn on the initiative of the customer.
Then, Clause 11 seems to bring all overdrafts within the category of restricted use credit, whereas surely an overdraft seems in itself almost the perfect example of an unrestricted use facility. Clauses 14 and 75 seem to offer some confusion. Cards are not, surely, a means of obtaining credit: the means is the credit balance lying behind the card, 1168 which is only evidence of that. Clauses 48 and 49 relate to canvassing. I believe that some assurances have been given there and included in the Bill. But what a hank manager, calling on a customer, ill or in good health, can or cannot safely say seems to me almost laughable, and simply will not stand up in ordinary practice."How are you getting on, old boy?" may be a most sinister start to a conversation—unless the "old boy" concerned has raised an eyebrow or started the conversation already, in which case it is perfectly innocuous. Then Clause 74 seems to exclude overdrafts from detailed documentation under Part V—that is a great help—but not, I gather, loans on current account. But, Mr. Emery, the Minister in the last Government at Committee stage, seemed to imply that it excluded such loans as well. That is the sort of point, my Lords, that I think will require clarification. Then the provisions regarding security, extortionate credit bargins, and statements of account will need examination and probing.
At the Committee stage in another place, a number of verbal assurances were given by the then Ministers which led the banks to hope that changes were going to be made in the detailed provisions of the Bill to meet the kind of points that I have illustrated. With a change of Government it is possible, understandably, that these oral assurances have foundered. May I ask the noble Lord, Lord Jacques, whether he will be good enough to clarify this position about the assurances given orally by Ministers. I do not want to try to hold him to repeating those assurances, because that would be ridiculous; but it would be very helpful if he would say whether the Secretary of State is going to study the oral assurances that were given, and the reasons for them, and at a later stage give effect to such of them as he may feel able to. That, I think, would be very helpful. If he cannot clarify them to-day, perhaps he will bear the point in mind, and tell us later on.
My Lords, in conclusion, the objection that I see on the half a dozen points that I have mentioned on this aspect of the Bill is that if the provisions are applied literally to current account lending (as against the more formal personal loan) and to overdrafts, the effect may be 1169 rigidity instead of informality; form filling instead of telephone conversations; delays instead of prompt service. The banker-customer relationship, which is a continuous one on a day-to-day basis, may deteriorate. I personally always have a very kind relationship with my bank manager. I always feel about him rather like I remember Mr. Macmillan mentioning in a speech in another place, when he said what good chaps they were. He recalled the man who said in his will that he was to be carried to the grave by six bank managers as pall bearers. He said, "They have carried me through life; they may as well carry me to the end."
I therefore ask the noble Lord, Lord Jacques, if he will consider one of two possible courses: either that the Director should be given general powers to exempt current account lending for those banks to which he thinks, after consultation with the Bank of England, that these regulations would be inappropriate to apply; or, alternatively, perhaps to draft a separate Part of this Bill which would deal exclusively with current account lending, laying down such criteria as seem appropriate to that type of lending. It is not my claim, or anybody else's, I think, that this lending should be entirely free from all regulations or controls, but unless one or other of these courses I have suggested is adopted, there is a chance that an otherwise praiseworthy Bill may damage a credit system which is used and appreciated by millions of customers in every walk of life; and that, I am sure, would not be the object of this Bill.
§ 4.31 p.m.
§ BARONESS BURTON OF COVENTRY
My Lords, I always think it is wise to realise what one does not know and I would not be competent to follow the noble Viscount, Lord Amory, in what he has just been saying, but I would be competent to join with him in welcoming this Bill. I think I am the fourth speaker since the Lord Privy Seal spoke to welcome the Bill. It is indeed a non-Party measure. What it aims at will be generally acceptable to all the parties directly concerned and I, for one, would certainly accept that the function of protective legislation is the redress of bargaining inequality, the control of trading malpractices, and the regulation of 1170 remedies for defaults. As the noble Baroness, Lady Seear, said, details can be discussed in Committee, but in this Bill the conclusions are reasonable and practicable and I would hope that implementing legislation would be largely non-controversial.
All of us interested in this Bill know and appreciate the good work done in Committee in another place, and this new Bill takes account of that work. While in Committee there, as I think the House knows, the Labour Opposition strongly opposed the idea that a new Department of investigation, headed by a Consumer Credit Commissioner, should be established to carry out provisions in the legislation. In the Bill we are discussing to-day the Director General of Fair Trading is made responsible, rather than having a new Department—this has been referred to by most speakers. I welcome this for two reasons. I think it is better that we do not have any more new Departments and I believe very strongly that in Mr. Methven we have the right person in the right place. I noted what the noble Earl, Lord Limerick, said about a possible conflict of interest arising if one particular person were in charge, and I note that he spoke about the conflicts of the consumers and the lenders. But I am sure from the way he is nodding his head that we both would agree that Mr. Methven is as good a person as we could get to deal with that matter. Presumably both Houses of Parliament will wish to see as good a Bill as possible on the Statute Book as soon as possible. Certainly this would be to the advantage of the general public.
When the Report of the Crowther Committee was published three years ago it received a welcome from consumer organisations and trade associations. Strengthening this welcome was the fact that at the same time there was considerable public dissatisfaction with the situation that the Crowther Committee were reporting on. As many of us know, new forms of consumer credit had multiplied during the previous years, so much so I think that both law and practice had become confused. Any attempt at reform had been piecemeal. My noble friend the Lord Privy Seal in opening the debate had quite a good deal to say about the methods of piecemeal legislation that had had to be adopted. I think the Crowther 1171 Committee arrived with an acceptable thesis—the thesis that the reform of credit law was long overdue. There were to be no half measures so far as they were concerned. On March 25, 1971, the Financial Times said—and I quote—that thisunanimous report offers the first-ever comprehensive review of the credit industry and proposes a basic change in the law to tidy up the existing jungle of legislation";and I think every one of us here to-day would agree that that is as good a description of the background to the Crowther Report as any that we could think of.
On re-reading volume 1 of the actual Report, published in March, 1971, I noted with pleasure the other day—as strongly then as I did three years ago—the section on page 233 dealing with the inequality of bargaining power. Here, speaking of credit, emphasis is laid on the fact that bargaining power lies with the supplier and that this is particularly the case where the transaction involves the extension of credit. I felt from the beginning that the Report of the Crowther Committee was a Report by people who really knew what was going on in the world of consumer credit. They realised the vulnerability of the consumer and the attraction of easy terms. In fact, on page 233 they said—and I should like to quote one sentence:The lack of information may make it difficult for the consumer to discover the drawbacks in the proposed transaction and the alternative opportunities that may be open to him. In short, all the expertise is on one side.One of the aims of this Bill is that advertisements shall not mislead the would-be purchaser and that there shall be full disclosure of the terms offered, including the amount and the cost of credit in cash and annual percentage terms.
I should like to add a further word on this question of expertise. This has been one of the main problems in consumer affairs down through the ages. So many consumer committees have found themselves ineffective when arguing with trade or industry, because the essential type of expert knowledge had not been included either in the personnel of the committee or in the professional services rendered to it. I myself have found that many times. I have heard the trade or 1172 professional side say: "Oh well, it is no use saying that. You don't understand what it's about." And I think that that was correct and it is something which should be altered. If consumer committees are to fulfil their function in future this one-sidedness, referred to in the Crowther Report, must be removed. The Post Office Users' National Council has dealt with this probably as well as any other committee. This is probably because the chairman, my noble friend Lord Peddie, is not prepared to have it otherwise, as much as for any other reason. But I would hope that all chairmen of consumer committees would consider this question of availability of expertise and would demand that it be available to them as a committee. I think that we can expect with confidence that the present Minister of Prices and Consumer Protection will have a long, cool look at the whole problem.
My Lords, in conclusion, I wish to refer to the lower limit of £30 for the application of the main provisions of the Bill—which is, of course, Clause 17. This—and I know the noble Earl, Lord Limerick mentioned this—was the original figure, subsequently changed to £10 in Committee. I too was glad to see the original figure restored. Noble Lords will probably have received a note on this point from the Consumers Association. As did the Consumers Association, I too wished to make sure that consumers would not suffer if the limit were to be £30 and not £10. I felt all along that the suggested limit of £10 was too low. As many will know, this view was shared by those engaged in check trading. It was shared by the Association of Mail Order Publishers, of which I am president. If consumers could be safeguarded in any other way we felt that the additional administrative costs and the additional labour necessary to carry out such documentation would be out of all proportion to the problem.
The Consumers Association, who originally favoured reduction to the £10 limit, have now accepted the original limit of £30. I cannot do better than to quote what they say:It became apparent to C.A., however, that certain provisions of the Bill, notably those dealing with 'cooling off' and the requirements regarding documentation, would impose a considerable burden upon businesses providing consumer credit in the £10 to £30 range of 1173 transactions. C.A. therefore withdrew its objections to the £30 limit, so far as those aspects were concerned, provided that the disclosure provisions would continue to apply to transactions down to £10. This in effect is what the present Bill provides.Obviously, there will be further points to discuss in Committee, but I am glad that this particular one appears to have been solved. I join with all the other speakers in the debate to-day in wishing this Bill well and hoping that it will reach a speedy conclusion.
§ 4.43 p.m.
§ LORD BARNBY
My Lords, this is a massive piece of legislation and it must be of great interest to all concerned with social welfare. We are indebted to the noble Lord the Leader of the House for the clear and helpful explanation he gave in interpreting the Bill. Of course it is intricate, as my noble friend Lord Amory has just said, and details are not appropriately dealt with in a Second Reading debate. The Bill has been "chewed over" in another place; and the Government are to be congratulated on so swiftly bringing it forward here with definite improvements. Therefore to-day we are dealing more with the question of generalities.
The Bill brings together complicated and massive questions affecting credit trading. It is the sequel to the Crowther Report on Credit Trading, and it constitutes a lasting tribute to the work of our former colleague in this House. This is a non-partisan Bill which will bring in its wake questions which can be dealt with in a non-partisan spirit. However, tribute should be paid to the constructive work done on the Bill at all its stages in another place, and the Government should be congratulated on its revised form and on the improvements made in most contentious areas. However, there remain many points of interpretation which merit appropriate discussion. It is to be hoped that the Government will allow full discussion with the interested parties. As yet, the Bill has not been long enough in circulation to permit approaches from those interested parties.
There are many kinds of consumer credit, and it can be said broadly that the purchaser is interested mainly in the cost of the article to him and not in the percentages of interest charges. As we 1174 are dealing with generalities rather than specifics, I am perplexed by the dislike in places of the profit motive. This matter was put forward most cogently and fluently by my noble friend Lord Erroll of Hale in the debate on the gracious Speech, but there seems to be a growing dislike of profit and an inclination to discredit it in every way. Unless the big corporations—and indeed others in this country—make good profits, whence will come the revenue Government need? They get 50 per cent., at least, and with succeeding stages much more. Moreover, apart from the larger concerns, if the medium-sized concerns cannot make generous profits how, in a free market system or (as it is commonly called) a capitalist system, can they get the necessary funds from the stock market with which to expand and give employment when the amounts generated from profits are manifestly insufficient? From a long business experience I find this perplexing.
Of course other people feel that credit itself is too easily accessible and that a bigger proportion of goods should be paid for in cash, "on the nail". But consumer credit is a social habit now assumed and understood. Here I declare an interest, because an important part of this business concerns check and voucher trading, and from its inception as a public company until fairly recently I was a director of the largest company in the country—the Provident—in that particular field. I am no longer a director but I remain a shareholder. I say this because the noble Lord, Lord Shepherd, mentioned that there was one angle of check trading to which it was proper that the Bill should draw attention and which would be the subject of discussion. I mention this because of the importance of this aspect of credit trading which the Provident provides through 16,000 agents and with 600 offices making contact with 11 million households in this country. In this system, no merchandise is owned, but I will not now go into more detail on that. The weekly personal contact of the agents with the individuals is of course a most satisfactory way of conducting this kind of credit. The vouchers and checks presented to the accredited shops generates the credit being given. Low debt experience shows how satisfactory is this way of trading.
1175 My Lords, my own business experience goes back to the early part of the present century. I still recollect well in the manufacturing towns of the North the head shawls and wooden clogs. I remember the fact that a very large part of the population was on the borderline of poverty. I came into contact with a good deal of it at that time. Bradford saw the beginning of check trading in its early days. Apart from being the home of the Labour Party, many other important movements have originated in Bradford. To counter the allegation of many in the country who say that credit is already too easy to come by and ought to be much more restricted, I would say that my own memory goes back to the days when by Thursday of the week for thousands there was little in the house and people were hungry. To be able then to go to the Provident and get credit of a pound, to be repaid over 20 weeks, was of tremendous assistance to households in dire distress. This credit system, which merits social approval, has grown massively.
My Lords, with the indulgence of the House, may I recall a personal experience to emphasise what I have been saying as to the benefits offered to the poorest families, in those days when there was no social welfare. I remember being sent by my father, after leaving university and a compressed apprenticeship, with my bag of samples to visit a prominent firm, the head of which was well known to my father. After having been graciously given a small order, doubtless on compassionate grounds, I was abjured in this way by the head of the firm, a prominent pillar of the Liberal Party, subsequently in the Cabinet: "Young man, remember; if you wish efficiently to run a textile mill you need a pool of hungry people at the mill gate available to be laid on or off at will." My university experience and my sense of social justice received a rude shock at that time.
My Lords, having emphasised how from Bradford grew a helpful development of credit trading, I can conclude by quoting the words attributed by the Press to the founder of the Provident Company, Sir Joshua Waddilove: "I started off on the assumption that the overwhelming majority of people in this 1176 country are honest and will keep their obligations. I have found this borne out by experience. I have seen, too, in the work of the Provident Company, clogs give way to boots and the shawl to the bonnet. I have seen families that were thriftless and wasteful made careful and prudent by the facilities offered to them." My Lords, in those words lie the justification for the Bill we are discussing to-day.
§ 4.58 p.m.
§ LORD SEEBOHM
My Lords, first I must declare my own interest. I am an executive director of a clearing bank, and a shareholder in that bank. I also worked for 44 years in the bank, so if I overstress the point of view of the banks, I must be excused as it has been my life. My comments on this Bill are of a technical nature and not directly concerned with profit or loss. The noble Viscount, Lord Amory, has covered most of the points concerned directly with clearing banks, and I would stress one or two others on my own account.
My Lords, the objects of the Bill are, of course, completely acceptable and I hope that the Bill goes through. I believe in an attempt to cover the whole field, certain transactions in the area of banking which are now absolutely simple and well understood (and probably have been for 300 years) might, and without further amendment, become so complex that I doubt whether they can be implemented. Clause 8 attempts to exclude agreements of over £5,000. I have grave doubts whether subsequent clauses do not in fact upset this intention, but it would take up too much of your Lordships' time to go into great detail on this particular aspect to-day. Therefore, I propose to concentrate on the position of the current account customer of a clearing bank who does not require credit in excess of that figure which means, in effect, the great majority of all bank customers. As the noble Viscount, Lord Amory, has already pointed out, the number has been estimated at something probably in the order of 17 million, so one could hardly be accused of special pleading considering that it covers such a vast number.
The Bill presupposes that every lending can be neatly defined and can be made the subject of an individual, regulated agreement. This takes little account of 1177 the fact that the traditional lending of clearing banks is made through the medium of a current account upon which cheques are drawn for a number of purposes quite unrelated to the purpose for which the lending was granted, and is further complicated by credits paid into the account which may or may not have anything to do with the repayment of lending. In order to preserve the image of a regulated agreement, the Bill should at least accept that the overdraft limit, and not the actual lending, is the relevant definition. But with the best will in the world, customers cannot always be so accurate in their budgeting that they do not depart from their arrangements with the banks. It is estimated that a branch bank may have between 50 and 100 cheques presented for payment every business day which either create an overdraft where there is no previous arrangement or in fact take an account in excess of its limit. At present most of these are paid. Under this Bill the payment of these cheques would constitute fresh and separate regulated agreements for every cheque, in circumstances where the banker is unable to contact the customer in order to arrange a higher limit. The alternative is to return the cheques; but just imagine the effect of having possibly a million cheques a day "bouncing" throughout the country.
It may be thought that all difficulties would be removed if no overdraft facilities were granted and all lending were taken on loan. Many loans, as opposed to overdrafts, are, of course, made to customers and often these are agreed on the telephone and cheques drawn immediately. Under the Bill loans can only be made by correspondence or personal attendance by the customer at the bank. So another convenience to the customer is removed. In any case, the convenience and cheapness of the overdraft system is one of the most valued services a bank can offer to its customers.
Again many, probably a majority, of customers keep more than one account. There may be a house account, a farm account and so forth. At present, under a banker's right to set off, so long as the overall balance is in credit, there is no reason why one or more accounts are not overdrawn from time to time. This will no longer be possible. The Bill also makes it impossible for there to be any more joint accounts of husband and wife 1178 where both must sign, or partners in a business, if any lending is involved.
I will deal only briefly with the question of security. It is a well established practice, as the noble Viscount, Lord Amory, has said, for a private customer to leave deeds or life policies as security for loans or overdrafts. These are often held uncharged, but they are something on which a banker has a hold should there be a default. While some concession has apparently been made in respect of Clause 105(5) of the Bill, the rigid requirements apparently envisaged will create unnecessary confusion and difficulty in what has previously been a highly acceptable but informal practice. Indeed I doubt the practicality of the present proposals. The situation regarding bank credit cards must also be mentioned. Under Clause 84 of the Bill it will be necessary to send each of our 6 million card holders a copy of his executed agreement every time the card is renewed; that means once a year. This just is not practicable.
I believe I have said enough to show that this Bill, in so far as bank customers are concerned, could have a serious effect. From the point of view of the clearing banks it could quite possibly mean employing 13,000 extra staff, the consumption of many tons of extra paper and a general slowing up of business, not only for the private customer but for the hundreds of thousands of small firms and partnerships who need all the flexibility they can get at the cheapest price. It is perhaps significant that, so far as I can find, the word "bank" appears nowhere in the Bill. Nor in their Report did the members of the Crowther Committee feel it necessary to comment on bank lending. It is my contention that a separate clause would be the most ideal method of dealing with this problem. But if it is done in that manner, Amendments will, I am afraid, be very complicated and difficult to frame.
§ 5.4 p.m.
§ LORD HELSBY
My Lords, I, too, should like to join in the chorus of welcome for this Bill. I think it is a necessary and significant Bill. There is no doubt that in recent years a great deal of ingenuity and effort has gone into devising new forms of credit. That has not been a bad thing in itself because there is an increased public demand for 1179 credit. Young people are no longer content, as they used to be in the old days, to save up to buy what they want; they want it now and to have the credit wherewith to buy it. But too much of this ingenuity has gone into either by-passing the piecemeal legislation which has existed hitherto or into making forms of credit already recognised more profitable to the creditors, sometimes in discreditable ways. Therefore, I think the Government are very much to be congratulated on very promptly bringing forward this Bill, so rescuing it from the limbo in which Dissolution left it. After all, three years have elapsed since the Crowther Report, and it seems to me high time that action was taken on the lines of that very excellent Report.
I think that the present Bill is a better Bill than its predecessor in the last Parliament. That is due, as the noble Baroness, Lady Burton, has said, to the Committee work in another place. That is not to say that I think that all the necessary work on the details of the Bill has been done; I am afraid it has not, by a very long chalk. But at least the lines of demarcation between those things to which it is intended to apply the whole apparatus of regulation and the rest have been made a little clearer than they were. I am sure that they have got to be made a good deal clearer yet.
I must declare my interest, because I, too, am a director of one of the clearing banks. I will not go over the ground that has been covered by the noble Lord who has just spoken or that covered by the noble Viscount, Lord Amory, but I think there are matters to be cleared up in this field. The Crowther Report indicated that it might be possible to take a relatively simple course on this point. The Report suggested that it might be possible to say in the Bill that any credit made available at a rate of interest less than Bank Rate plus 2 per cent. would not be caught by the Bill. That was an attractive and simple method of achieving the objective. But I think we have to admit that it could not be worked now; too much water has been going under the bridges. To begin with, we no longer have an official Bank Rate, and you could not, I think, use in its place the alternative of the clearing banks' base rate, which may not be the same for all the 1180 clearing banks. Again, in the last few years the banks themselves have embarked on certain forms of credit-giving which ought properly, to my mind, to be caught by the Bill. Nobody I think would dissent from the view that the personal loan is properly caught by the Bill.
I think, too, that the credit card, or the credit that lies behind the credit card, is properly caught by this Bill. But when you go back to the traditional methods of bank lending, with their exceptional convenience and flexibility and their comparative cheapness, there is much to be said for exempting the overdraft and the ordinary loan on the current account from the paraphernalia of documentation and security and the rest of it; this would inevitably impose inhibitions not just on the banks themselves—they, you might think, could stand it—but on their customers, because it has to be remembered that any unnecessary regulation imported into this field will have to be paid for by the customer. Whoever is the lender will find that his costs go up, with the greater amount of documentation and so on, if this is required of him.
Lastly, I would say that I am very glad the Bill has this time been brought to your Lordships' House. I think this House is an admirable place in which to do the rather hard work which will be necessary at the Committee stage in getting a number of points clarified and the Bill generally licked into shape, but I am sure that it can be done and that the results will be a very worthwhile Bill.
§ 5.10 p.m.
§ LORD MAIS
My Lords, I would first wish to join with other noble Lords who have spoken in giving a very sincere welcome to this Bill. It is a piece of legislation which probably is long overdue. It replaces a great deal of outdated legislation, and gives the consumer reasonable protection. It also makes possible fair competition between different providers of credit. The Bill will be remembered for one thing, if for nothing else (and it was referred to by the noble Earl, Lord Limerick), for it will repeal seven United Kingdom Acts and parts of many others. As the noble Earl said, I believe that 232 sections and 22 Schedules will be swept aside. If I may say so, this is quite an achievement, and one we do not often accomplish.
1181 I believe we should admit that, by and large, the majority of those who provide our consumer credit conduct their transactions with honesty and integrity, and provide a necessary service to the borrower. On the other hand, we must also not lose sight of the fact that there are a minority who have abused the trust which has been placed in them, and therefore this Bill will be welcomed not only by the consumer or the borrower but also, I am certain, by all those institutions that conduct their affairs in an equitable and honest manner. It would be impossible to-day, nor would it be right or proper, to attempt to deal with the Bill in detail. I will confine myself to one aspect of the Bill, and I must confess that it is one that has been mentioned rather frequently in your Lordships' Chamber this afternoon. I shall do my best not to cover too much of the ground that has already been dealt with so expeditiously by other noble Lords.
I am sure your Lordships will not be surprised to find that I naturally follow much the same road as did the noble Viscount, Lord Amory, for at this stage I also must declare an interest, being a director of a bank. Perhaps I had better explain that it is a Scottish bank, and therefore possibly a little more at arm's length, although we would not necessarily admit that; nor do we take any less interest in this Bill. What disturbs me, as it has disturbed other noble Lords, is the effect this Bill could have, or the impact it could have, on the activities of the clearing banks, with particular reference to their temporary overdraft facilities and loans on or against current accounts. As has already been said, this could affect some 17 million customers, and how this will affect them or the banks is not at the moment entirely clear. The banks in this country operate a flexible and a fairly informal system of banking and overdrafts, and it must be borne in mind that the customer is only charged interest on a day-to-day basis, and he can reduce his indebtedness whenever he likes. I should think that if you compare the interest rates that the banks usually pay, they will show up very favourably with any borrowings you can obtain anywhere else.
1182 As I have already said, there is none of us who does not welcome this Bill, and we appreciate that its object is to prevent abuses which may have been practised, or may be practised, by certain persons or institutions. But I would express concern as to whether the Bill in fact took into account, or whether it was appreciated when it was drafted, the whole basis of current account lending. The danger I see in the Bill is that the present flexibility in lending which is operated in the banks could be affected. It appears that it will not be possible for one to vary or change one's arrangements with a bank by means of a telephone call or an informal meeting with the bank manager. I particularly refer to Clauses 48 and 49. May I leave it there, and turn to Clauses 8 and 10, where there are some pitfalls as well?
I should like to draw your Lordships' attention to certain situations in which one may well be affected by these clauses. Again the noble Viscount, Lord Amory, touched on this. It would appear to me that should you inadvertently, without prior arrangement, overdraw the facilities that you had arranged, then you would be caught by this Bill. Similarly, if at any time you overrun whatever your facility is, regardless of the limit, again you could be caught. It sounds ridiculous, but you could arrive at a situation where a new regulated agreement, or an additional agreement, would have to be made every time a cheque was written which took you over the top of the agreed excess limit of your overdraft.
Secondly, it would appear that in practice banks will be able to operate the overdraft system in the personal sector only if they can be certain that the overdraft remains within the agreed limit regardless of the extent, or the amount, of securities which they may hold on the customer's behalf against the loan that he has been granted. I think that it was the noble Lord, Lord Seebohm, who referred to this. In practice one could find the position that a perfectly respectable customer of the bank writes a cheque which takes him over the top of his agreed limit and the bank would have no option, if they could not contact him fairly quickly on the telephone or in some other way, but to refuse the cheque and return it. Maybe that is an exaggeration 1183 and maybe it will not happen, but as a fact it could happen and it could cause a great deal of embarrassment. I am very glad to see the noble Lord shaking his head.
One likely consequence in the personal sector may be that overdrafts may tend to be decreased very drastically and be replaced by loans. Basically I think that would not always be in the interests of the borrower. I can only submit to your Lordships that the theory of a regulated agreement is somewhat inappropriate in concept to a running-account upon which cheques are required to be paid, because the initiative in taking the lending lies in the hands of the customer who issues the cheque. It appears illogical that a bank overdraft should be equated in any way at all to a budget account with a departmental store.
I now turn to the question of bank cards. I will not waste time on it because it has been referred to on several occasions. I would submit that consideration should be given to excluding these cards from the Bill, for they themselves do not constitute a means of obtaining credit. The essence of the transaction is that the cheque is the instrument, and the card is merely an indication that that cheque will be honoured provided it is within certain limits and conforms to certain conditions. The card is really only to assure, or reassure, the trader. There is no agreement between the bank and the trader himself.
I would again refer to one point that worries me somewhat. To apply the provisions in Clause 75 would impose a liability on the card issuer for misrepresentation or breach of contract by the supplier in relation to goods purchased by the card holder. If that is right, and it is applied to a bank card, I imagine that some 6 million people are likely to be without cards in the fairly near future. Lastly, may I draw attention to Clause 158, which gives further powers of entry and inspection. I think that this must cause some concern to all of us. The relationship between a customer and his bank is one of a highly confidential nature. It is a clear banker/customer tradition that it should be so, and it is most important that that relationship should not in any way be interfered with.
1184 I have referred only to one or two specific points, but there are others which, added together, will have a slight effect on confidence, good though this Bill is. By that I do not mean only confidence by the banks, because as much confidence is required by those who place their money in them and similar institutions as there is a need for confidence in banks when it comes to lending, and it is essential that that fact is not lost sight of. In drafting any form of legislation, I appreciate that if one attempts to avoid leaving any opportunities for those whose integrity and principles are not of the highest order, it is very difficult to allow those whose integrity is above reproach to have any reasonable freedom of action. But it is the responsibility of Government not to restrict too severely the present flexibility of our present banking system.
For these reasons, I hope that serious consideration will be given to granting the Director General powers to exempt current account lending by banks whose reputations are such that he considers they are entitled to that exemption. That is the least that I would ask for. As other noble Lords have said, it would be much more satisfactory if the Minister would consider a further addition to the Bill dealing exclusively with current account lending. I shall end as I began by saying that no one could do other than welcome this Bill and give it maximum support. All I would ask is that the points which I and other noble Lords have made, which are very relevant to the banking system, are considered. I put my trust in the Committee stage and hope that they will all be agreed to.
§ 5.21 p.m.
My Lords, I am very pleased to follow the noble Lord, Lord Mais, because although by the custom of your Lordships' House I cannot refer to him as "my noble friend" he is a colleague of mine in other fields, and in some respects in this field. I am also glad to be able to follow the immediate past Lord Mayor of London, because it is in the City where so much of what we are talking about to-day revolves. I shall be very brief and even briefer than I had intended to be, because so many of the points that I wanted to make have been far better made by other noble Lords. I shall confine myself, like 1185 some other noble Lords, to that aspect of the Bill which affects the clearing banks, and here I must declare an interest as I am a director of one of the London clearing banks.
Reference has been made to the previous Bill which was introduced into another place by the last Government. I should like to make the comment that when it was going through Standing Committee there was considerable discussion with the Department of the clearing bank points that have been mentioned to-day. I am given to understand that, while the start of those discussions may have been a little sticky, the Department very soon became extremely sympathetic and considerable encouragement was shown by certain Amendments which were made in Standing Committee and then by certain changes which have been introduced into the present Bill. That leads one to hope that some of the further suggestions that have been made to-day will be taken up by Her Majesty's Government and introduced later during the passage of this Bill through either this House or another place, because there are still a number of rather disturbing aspects particularly as regards the clearing banks.
Having said that, I should like to join with every other noble Lord who has spoken in welcoming this Bill, which is a non-Party Bill and which is very much needed if the borrower is to be safeguarded from certain unscrupulous lenders. Everyone would support that main motive of the Bill. But there is the other side, which has been so clearly put by other noble Lords, that customers of the clearing banks may find certain aspects of the Bill detrimental to the way in which they have become accustomed to using their banks. The question I ask is: is this right, is it logical, is it intended and was it the view of the Crowther Committee? The noble Lord, Lord Helsby, referred to one aspect of the Crowther Report; that is, how the clearing banks might be dealt with. In paying tribute to the late Lord Crowther, one must feel sorry that he cannot be with us to tell us what he had in mind in regard to the clearing banks under the changed conditions that apply to-day.
I should like to ask this question, which is perhaps rhetorical. How can you draft a single piece of legislation to deal 1186 with two entirely separate sets of circumstances? The two sets of circumstances are, first, the single transaction of a finance company, rigidly documented in full and often contracted with an unknown borrower; and, secondly, the informal arrangement, which has been referred to so often and which has been so long-established, between a clearing bank branch manager and his customer based largely on mutual knowledge, trust and understanding. Can one really hope to draft a piece of legislation which will cover those two entirely different sets of circumstances at one and the same time?
Of course the Bill is highly complicated and technical and, as my noble friend Lord Limerick has pointed out, full of definition. Surely most of the definition has been attempted in a way which is out of keeping with the practice of the clearing banks, although it inevitably trespasses on the activities of clearing banks from time to time. I would join with others who have said that where there is similar business, such as personal loans and credit cards, it is entirely proper that the relevant parts of the Bill should apply equally to the clearing banks as to any other finance houses. What is sauce for the goose is sauce for the gander, and that is absolutely right. But I submit that, as it at present stands, the Bill is not appropriate to the normal day-to-day business of the clearing banks which concerns current accounts and overdraft and ordinary loan facilities. The Bill is bound to be too rigid and is certain to add cost, delay and inconvenience to the customer.
There is an enormous amount of detail in the Bill, and if one attempted to talk about it all one would land oneself in the position of being criticised for developing Committee points. But my noble friend Lord Amory has referred to Clauses 8 and 10, and the questions of credit, inadvertent overdrafts and excess drawing. One of the questions that arises in my mind over such doubts is to what extent the branch manager will lose the very valuable amount of discretion which he is given by his board in dealing with his customers. I have a feeling that without some amendment the branch manager's degree of discretion will be largely, if not entirely, eroded. I hope that particular set of points will be dealt with in Clauses 1187 8 and 10. I will not deal with another point, which has been mentioned on a number of occasions, concerning Clause 14 and Clause 75, dealing with cheque cards and the liability of the card issuer for the transactions that arise out of those cards, nor with Clauses 48 and 49 on canvassing, although this again is an important point. The present Bill has improved the situation as it existed in the original Bill, but still there are difficulties, as my noble friend Lord Amory pointed out to us in a very humorous and delightful example. Reference has been made to Clause 74. There overdrafts are to some extent excluded but not ordinary loans on current account.
My Lords, without repeating the details of some of these clauses, and there are others that other noble Lords have mentioned, in some cases minor amendments would make them much more acceptable and easy to work. Is amendment possible? The noble Viscount, Lord Amory, followed by the noble Lord, Lord Mais, at the end of their speeches put forward two possible suggestions for dealing with this point, bearing in mind that amendment just as amendment may be a difficult and complicated matter. But why not exempt current account lending by those banks which the Director General would approve? That seems to me one simple way of dealing with it. The other way, which to me has considerable attraction, is to delete from the Bill those aspects that would be applicable to the clearing banks and put them in a new part of the Bill, drafted in such a way which would be appropriate and in keeping with the way that the clearing banks work. This would seem to me a much simpler and, in the long run, probably the best way of doing it. However, having said that, and having suggested that there are grounds for concern from the point of view of the clearing banks, I repeat my welcome to the Bill. I think it is timely. One must again congratulate the Government on having produced it so quickly for debate in this House.
§ 5.35 p.m.
§ LORD DAVIES OF LEEK
My Lords, I am sure we are all grateful for the constructive and informative speeches of the noble Lords, without naming all of them, to whom I have been able to listen, except the noble Viscount, Lord Amory, 1188 to whom I apologise, for what they have said about the Bill so far as it affects banking arrangements. First, it is agreed that it is more or less non-contentious, having been introduced by the present Opposition; that there are no deep political differences and that a contribution could be made to society by making the Bill crystal clear.
I have listened carefully to the noble Lords, Lord Mais, Lord Helsby and the noble Viscount, Lord Rochdale, who has just sat down, but there seems to be a dichotomy here that should be cleared up. I am thinking of my own background of small farmers and colliers. Although we went to the bank for a little money in those days we were never able to think of borrowing in terms of £5,000, and in this Bill we appear to be lumping together people who—I do not want to use ugly words or to say "illiterate"—could not find their way around this sophisticated society, who are more familiar with the old-fashioned doorstep selling pattern that we knew so well in South Wales. We are talking about the man who signs his name to agreements in shops and is not sure what he has signed. I am thinking of credit protection where that type of person is concerned. Those of us who are sophisticated enough to keep current and deposit accounts have no trouble in arranging an overdraft. All we need to do is to ring our bank manager saying, "See that I am not overdrawn by a half million." There is no trouble in getting what one requires. I am more concerned with the people who are saddled with agreements which they do not fully understand. I dealt with many such cases in my 26 years in another place—people who were trapped with the ruthless organisations with which they dealt.
I have been reading the annual report of the Consumers' Credit Association and have read many copies of Which?, and it is good to find that the honest-to-God, constructive finance houses of Britain welcome the Bill. I hope that this House, when the time comes for these Committee points to be discussed, will have the benefit of the expertise of the noble Lords who have spoken on selected Amendments that may be necessary to help the Government and Parliament to get the Bill straight.
Having said that, and not intending to be too long, I want to point out that, 1189 whether we are in the Common Market or not, it seems to me—and I am not so much in favour of it—that I am right in saying that this is the one country out of the Nine that has no real Ministerial consumer organisation. Is there a need now for a type of Ministry dealing with the small consumer and the small creditor or consumers and creditors in general? Had we had a Minister for Consumer Affairs I am quite certain that we would not have been swept so quickly into metrication, or swept so swiftly into this terrible "Noddy money" which I carry around in my pocket, with a coin smaller than a threepenny bit, which people drop on the floor and no longer tend to pick up, although it is worth more than the old penny-farthing. There seems to be in our society an acceleration of change, a frenetic desire on the part of the Government to churn legislation through the green and red Benches of Parliament and say "How good we are! Look what we have turned out!" Then at the General Election the merit certificate was the number of Bills the Government had got through. It did not matter whether they were good or bad Bills. I could almost shoot the people who introduced so quickly metrication and now decimal coinage. I do not want this Bill, with its intricate financial problems, to get through too quickly. As someone who took economics many years ago, I am wondering what some of the definitions in the Bill really mean.
My Lords, I have two other points, if you are not suffering. The former Government—God bless them !—destroyed the Consumer Council, although they had set it up, strangely enough. In a world of expanding credit, a great many people—even noble Lords who have been talking with knowledge on high finance, and most of their friends and others—will buy a car. They may buy it through the bank. Or they will want credit facilities to buy—because they love good music—a first-class hi-fi stereophonic record player. Hire-purchase terms for young married couples to-day is one of the marvellous things. I went to the house of a son-in-law of mine. The rags on his behind were almost beating his brains out, but when I went into his house it was loaded with beautiful furniture. He is something of a musician 1190 as well. All that, young people rush into. We were brought up with the idea of "cash on the nail", but that house was furnished. That is what happens to-day. These people should definitely be protected from usury—and I use that old-fashioned ugly word. That is what this Bill sets out to do.
I have two other points here. Others have spoken about them and I remember the noble Baroness, Lady Burton of Coventry, has spoken so much about misleading consumers about rates of interest. I have listened to her informed speeches on this subject many a time. I hope that we shall do something about this matter. The Molony Committee in 1962 recommended a revision of the law on hire-purchase. Perhaps the noble Baroness will confirm whether this is so, but I think that we still have not yet done enough on that matter despite the fact that it was 1962 when the Molony Committee made that recommendation.
In simpler times and olden days the rule of caveat emptor !, on which I was brought up, operated fairly well because in those days both trader and lender operated on near to equal terms. But to-day, in modern times, the buyer and the borrower are at a great disadvantage. One of the daftest pieces of advertising these merchants of desire have created is of two simple-minded people saying, "Oh, you want money. I have somebody in here—" and they open a thing like a Welsh pantry and out comes a bank manager. I hope that some noble Lords will have seen this daft piece of advertising urging viewers to "Join your local bank. Let your hank manager be your friend." God help them if they want some help and they are overdrawn! When the door opens, out comes this smiling bank manager. I have never seen my bank manager smiling, in the old days, when I was young and I wanted a few pounds over and above what he thought I had the collateral for.
Returning to a more serious note, I believe there should be some limitation on the advertising that rushes people into buying often shoddy, insubstantial goods at extortionate prices. These merchants of desire have extended that advertising to the art of packaging, and often the package around the crude article is worth more than the rubbish inside it. There 1191 should be a limit on this, and I should like to see, even in this Bill, some kind of limitation.
So, summing up, it is fortunate that powerful and legitimate finance houses and associations welcome this Bill. The noble Lord, Lord Mais—and here I come to my final point—touched on the powers of entry. In the world in which we now live I hope that in this House at some time in the not too distant future we shall get down to this question of the tribunals that are growing up like mushrooms springing out of Acts of Parliament. We set up these tribunals where a poor layman is confronted by people, and even if it is only throe people he is lost. I took people to tribunals when I was dealing with problems as a Minister and when I introduced a Bill in another place to do with pneumoconiosis and emphysema. All noble Lords who have had experience will know of these tribunals and the difficulty caused to the layman. My question here is: what kind of ways will be available for justice to be done to the people who have not the money or the availability to use the best type of legal information? Will legal aid be available?
The President of the Manchester Law Society (and remember, the Government dealt with this issue of small claims: I shall not bore the House because many noble Lords in the House will know more about the subject than I do), in the Manchester arbitration scheme for small claims, was dealing with claims for settlement up to £150, not with amounts of £5,000. I want to see debts of £100 or £150 written into this Bill. I have known of people committing suicide in the hungry 'thirties when their debts were only a tenth of that. They were overwhelmed. I do not want any noble Lords to laugh, but there are still parts of Britain where there are conscientious people; and I was so pleased to hear the noble Lord, Lord Barnby, say that he believed, when he was a pioneer in this Provident system, that the majority of the British people honoured their debts and were honest. I think that is still true, and consequently I want constructed in this Bill some simple formula which will give these people who do not know their way around the sophisticated world the protection they deserve for those small debts. 1192 Having said that, I am looking forward to an interesting and constructive period when the Bill comes to the Committee stage.
§ VISCOUNT AMORY
My Lords, before the noble Lord sits down, may I ask him whether he is aware that the experience of the reputable hire-purchase companies, about which I know nothing personally, bears out what he says about the basic and essential honesty of borrowers in this country? It is amazing not how many debts they get but how relatively few, including I think among many of the young people who many of us feel borrow perhaps rather too impulsively. I believe that what he say is still basically true and I hope that always will be so.
§ 5.47 p.m.
§ LORD JACQUES
My Lords, first of all I should like to thank all noble Lord who have taken part in the debate. We appreciate the way in which this Bill has been so well received on all sides of the House. The Bill in its present form is what I would call the Mark II version, which we think, as a result of what has happened in the meantime, is a little better than the original Bill which I will call the Mark I version.
Many people are responsible for our having got to the stage of having this Bill in this form. First of all, we are all indebted to the late Lord Crowther's Committee. It did extraordinarily painstaking work, so much so that its Report will be a landmark in any history of consumer protection. We are also indebted, I think, to the noble Baroness, Lady Phillips, who gave us an opportunity to debate the Report in 1972, when a good deal of information was made available. Next we are indebted very much to the Ministers in the last Administration because this Bill is substantially the same as the Bill which they introduced in another place. The differences are not in substance, they are in detail. We are indebted to the advisers to both Administrations. Again, we are indebted to the Committee in the Commons which considered the first Bill, because it was at that stage that many of the points raised by creditors, suppliers and consumers were highlighted. I am pleased to say that, in spite of what has been said by people with a knowledge of the clearing 1193 banks, most of the points raised have been met in one way or another, and we are hoping that because of that the Bill will have a quick passage.
I shall now attempt to reply to at least some of the points made to-day. The noble Earl, Lord Limerick, raised the question of appeal to the Secretary of State. In the former Bill, if a licence was refused by the Commissioner there could be an immediate appeal to the High Court on a point of law. Under the new Bill, the appeal to the High Court on a point of law can be made only after the case has been heard by the assessors appointed by the Secretary of State. That has been done on the grounds that it is quite a normal practice to avoid an appeal to the court until all other remedies have been exhausted. The next question asked by the noble Earl was whether the Director General, when he reported, was to have his report laid before Parliament. Yes, the Director General's report will be laid before Parliament under Section 125(3) of the Fair Trading Act. His next question concerned the period of licences. The period of licences has not yet been fixed, but it will possibly be three years.
Another question asked was: what was the reason for taking out the clause which made it an offence to give false information to the Director General? My Lords, that clause has not been taken out of the Bill: it has been taken from where it was and put elsewhere. It is now Clause 7. There was also raised a question as to the compatibility of the functions of the Director General in relation to consumer protection, on the one hand, and the administration of credit trade, on the other hand, where he would have some judicial powers. This, I think, has been well taken care of. First of all, there is now an appeal to the Secretary of State, which was not in the former Bill; and the Secretary of State will appoint assessors, either lay or legal, in order to deal with the appeal. Secondly, the work of the Director General will be under the supervision of the Council on Tribunals. We believe, therefore, that there will be adequate supervision.
Then, the question of how the actual work would be done and supervised in the Director General's office was also 1194 raised. I understand that the Director General's intention will be to appoint an officer of senior rank to take charge of the consumer credit branch of his office. Recruitment for the post will be open to experts in the industry as well as to others; for example, lawyers or civil servants who have qualifications in this field could apply. This practice follows that adopted by the Director General for the recruitment of his senior staff on consumer affairs. That, I think, fairly well covers that point.
§ THE EARL OF LIMERICK
My Lords, would the noble Lord permit me to ask him for clarification there? Do I understand that this officer, when recruited, would have the titular position of Commissioner for Consumer Credit or some name (I obviously do not urge the word "Commissioner") which would identify him as the focus of this activity within the Director General's office?
§ LORD JACQUES
My Lords, it is intended that there will be a separate branch of the Director General's office dealing with consumer credit, and it is intended that the officer to whom I have referred will be at the head of that branch. Beyond that I should not like to go.
The question of building societies was also raised. There were discussions with the building societies, and the result of those discussions was that it was felt necessary to include building societies in the Bill in only two respects. First, in respect of advertising: where they have an unspecific advertisement they are not affected by the Bill; but where they have a specific advertisement advertising credit and quote a term or rate of interest, then there must be truth in lending, and they have then to give the annual rate. Secondly, their agreements, like anybody else's agreements, can be taken to the High Court and the debtor can attempt to prove that they are extortionate. But one of the directives to the court in a Schedule to the Bill is that the court should have regard to the rate of interest prevailing at the time of the loan, so that every precaution has been taken to ensure that it is fair on both sides.
The next question raised concerned the provision whereby someone who takes a loan and decides to cancel within the cooling-off period can keep part of the 1195 money and cancel the loan only for the other part. There is a case for and a case against here. This is a point which could be usefully discussed in Committee. Since the case for making any change has been put, I will briefly put the case against. The lender of repute is not likely to go into the house of a borrower and just put the money on the table, hoping that the borrower will spend some of that money and, having spent some, will have to hold to the agreement; but that is done. The lender of repute will simply make his arrangements and, having made his arrangements, will say, "On a certain date you will have my cheque for the amount", and the agreement would provide for that. That date would be the end of the cooling-off period, after which there could be no cancellation. That is only a fortnight after the agreement. So there is a way out on the part of the lender of repute. The person that this particular part of the Bill tries to catch is the lender who gets his business by post—he can solicit by post or telephone even after this Bill becomes law—and who, as a result of soliciting by post, gets an invitation and, after making sure that he has got a safe bet for getting a high rate of interest for his loan, leaves the money, some of which is spent. We want to enable that kind of borrower to say, "I return some of the money", and the agreement would apply only to that part which he does not return. The noble Earl, Lord Limerick, also mentioned the change from Clause 19(3) to Clause 9(3), and asked whether it made any difference to truth in lending. The answer is that it makes no difference: it merely makes the Bill a little tidier.
The noble Baroness, Lady Seear, mentioned at least two points, I think. First, she welcomed the point on sex discrimination in relation to licences. I would say that information on this is inevitable, because at some point in the licensing system the person who is applying for and hopes to receive a licence will be told just what would cause his licence to become invalid, and therefore the information will be disseminated. Also, there is a clause in the Bill, Clause 4, which provides for dissemination of information and education about credit, and that, I think, would go some way to meet the point which the noble Baroness raised. She also raised another point 1196 about credit in inflation. On this point I would say that inflation tends to encourage credit. People see ahead and think something is going to be dearer in two years' time so they buy it now oil credit so that they will be paying for it in two years' time with money that will be worth less than it is to-day. In that sense it is probable that we have more credit now because of inflation. The noble Lord, Lord Meston, raised the question of Section 6 of the Moneylenders Act. The provisions of that Section are covered by Clause 60 of the present Bill.
I come now to banking. If I attempted to reply to all the points that have been raised on banking I would convert this into a Committee Stage. I am not going to do that; I am going to do two things: take the position as it is and make a promise. I think the House ought to know that representatives of the clearing banks have seen the Department and made representations. In addition to seeing the Department they saw Sir Geoffrey Howe, the Minister of Consumer Affairs in the last Administration, and made their representations to him. They have also made representations to Mr. Alan Williams, the Minister of State in the present Administration, so that long before the Second Reading today they had a hearing—not one but several.
As a result of these representations drastic changes have been made in the Bill in regard to overdrafts on current account. These overdrafts are excused from the limitation of canvassing, they are excused the documentation, they are excused the cooling-off period and, in addition, there are several other amendments of a more technical character which have been made on the representation of the clearing banks. It is our opinion that the Bill does not now interfere unduly with the flexibility of the overdraft system which we wish to see maintained and that the inclusion of loan accounts within the scope of the Bill is completely reasonable. There is a limit to having one law for geese and another law for ganders, and to some extent that is what the clearing banks are asking for.
§ VISCOUNT AMORY
Will the noble Lord tell me into which category I fall? I want to be clear about this. What he says about the overdraft is perfectly 1197 right. A number of effective concessions have been made. What the banks are worried about are the temporary loans made on current account as against personal loans. The noble Lord said that he thought the Bill was quite all right there. That is a point which I expect some of us will want to question at the Committee Stage.
§ LORD JACQUES
My Lords, I come now to the promise I am going to make. I think it would be helpful if I had a brief document rather than a letter circulated to those noble Lords who raised points on banks. That would probably avoid some amendments and that is my main interest.
§ VISCOUNT AMORY
I have no personal worries. I have got my overdraft, I have got my temporary loan and I do not want a personal loan.
§ LORD DAVIES OF LEEK
My Lords, before the Minister makes that point, will he help me in regard to this matter of circulation? There are so few of us, he might as well send the circular on banks to all of us rather than just to those who spoke on this subject.
§ LORD JACQUES
I should be glad if the noble Lord would leave that point with me. On timing, once the Royal Assent has been given, the regulations will have to be made to make the measure complete. There will need to be consultations with interested parties and these will be completed as soon as possible. Once the regulations have been made time will have to be allowed for the re-training of staff, reprinting of publications and for planning new programmes for computers. Here I will give both a promise and a warning. We will undertake adequate consultation and give time for creditors and others to take the necessary administrative action. On the other hand we do not intend the full implementation of the Bill to be held up for one moment longer than is necessary. We believe that the urge now is to get the Bill on the Statute Book. The Government are anxious that the Bill which emerges from our deliberations should be fair to all and provide a satisfactory 1198 framework not only for the short term but for the long term future. They will, therefore, be ready to consider amendments put forward, provided those amendments are wholly consistent with the principles laid down in the Bill.
On Question, Bill read 2a, and committed to a Committee of the Whole House.