Third Standing Committee on Delegated Legislation
Wednesday 4 February 1998
[Mr. Joe Benton in the Chair]
Draft Consumer Credit (Increase of Monetary Limits) (Amendment) Order 1998
4.30 pm
The Minister for Competition and Consumer Affairs (Mr. Nigel Griffiths): I beg to move,
That the Committee has considered the draft Consumer Credit (Increase of Monetary Limits) (Amendment) Order 1998.
The purpose of the order is to increase some of the monetary limits in the Consumer Credit Act 1974, notably those that determine which consumer credit and which consumer hire arrangements are regulated by the Act. From 1 May 1998, I am increasing the limit to œ25,000 from the present limit of œ15,000. The change will be highly beneficial to consumers. It will affect almost all unsecured loans and many more secured loans than before.
The change means that most consumers who take out unsecured consumer loans will be protected under the Consumer Credit Act. It covers cancellation rights, cooling-off periods and early settlement rebates. It also means that interest rates cannot be increased on default, thus protecting vulnerable consumers who miss one payment from the automatic imposition of penal rates of interest.
The courts have powers to rewrite credit agreements to order the lender to reduce the level of payments and even repay part of the sum to the consumer. Courts can also consider a range of factors, including the interest rate at the time of the original agreement; grossly exorbitant payments; the age, experience and health of the consumer; whether the consumer was under undue financial pressure at the time when the agreement was signed, as well as the degree of risk taken on by the lender.
I want the order to be effective. The new limit that I am announcing today covers the majority of loans that people take out to buy cars and consumer durables, such as washing machines, cookers and fridges. Our manifesto gave a commitment to increase protection for mortgage buyers. I am pleased to announce today the first practical steps that we are taking to honour that commitment.
As a result of increasing the limit on loans now covered by the Act by œ10,000, many house buyers will gain protection when they take out loans for house purchase and other loans secured on property for example, house extensions financed by second mortgages. That will be particularly relevant to consumers who cannot get loans from traditional banks and building societies. The limits covered by the order are some of the most important monetary limits in the Act for example, the limit at which certain credit advertisements are exempt from the provisions of the Act.
The hon. Member for Daventry (Mr. Boswell), who is leading for the Opposition, has taken a particular interest in pawnbrokers and the events that surround them. I am pleased to tell the Committee that the upper limit of pawned property that passes to the pawnee, on failure to redeem within the redemption period of six months, is being increased from œ25 to œ75. The Consumer Credit Act also contains various other monetary limits and amounts, which I propose to increase similarly by separate legislation and which are not subject to the affirmative resolution procedure. I commend the order to the Committee.
4.34 pm
Mr. Tim Boswell (Daventry): I shall respond briefly to the Minister's remarks. First, I shall put him and, indeed, the Committee out of their misery by saying that the Opposition do not oppose the order. However, we wish to ask one or two questions about it.
I start with a couple of slightly politically contentious remarks; the majority of the rest of what I have to say will be more or less technical. It is fair to point out that the increase is the first since 1985. Due to the wise stewardship of the outgoing Conservative Administration, certainly in the later years, inflation has been sufficiently contained to make it unnecessary to increase the limits for 13 years rather longer than I or the Minister have been Members of Parliament. That should be recorded.
When the Minister spoke about mortgage protection, I thought that I heard a press release coming on. He said that the order would increase protection in relation to second mortgages and possibly for smaller first mortgages on comparatively low-value properties. Given that the average mortgage is œ38,000, it would be rather overselling the order to say it was a major step forward in protecting mortgagors, although the Minister will, I am sure, say that any change is useful.
The Minister will clearly have an interest in how such matters are reviewed. I suspect that officials thought that, after about a dozen years, it was time to consider the effects of inflation. I do not mean that they simply wanted to replicate the traditional figures, validating them for the intervening inflation. They sensibly wanted to ascertain whether there could be alterations or amendments to produce realistic, intelligible and convenient figures. That, I suspect, has been done, and I have no objection to that.
I next question the scope of the order. I do not say that its scope is not appropriate. It may be sensible. Since 1974, when the Consumer Credit Act was passed, successive Governments have agreed to the principle of there being some protection at what might be termed the bottom end of consumer credit. I do not mean to sound derogatory; I mean credit for small items purchased with secured or unsecured loans, rather than the house and the first mortgage. In my experience, that has not created major problems.
Outwith my Front Bench responsibilities, I cannot remember receiving a significant amount of constituency correspondence on the matter. Individuals or firms sometimes seek to gain an advantage and may trade unfairly, but it has been a reasonably stable field. In my experience, matters have settled down over the past 25 years. There is no problem.
I hope that the Minister has in mind a periodic review of rates. I do not mean that he has to tinker with them every 10 minutes; nor do I ask that they should be automatically inflation-proofed, even though I suspect that the rate of inflation might edge up under the present Administration. I hope that the review will also consider the appropriate coverage of the order. Past practice does not mean that we should automatically validate the same coverage in future.
The Minister spoke about pawnbrokers. I may have misheard him or misunderstood the rather helpful compliance cost analysis. I understood the Minister to say that the top limit, when a pawned item may be sold without separate notice, would be increased to œ75. The regulatory quality certificate makes reference to œ100. I may have misunderstood the Minister, but there may have been some inconsistency or change of practice.
I return to those general points that the Minister can answer before we conclude our consideration of the order. Will he say how, in the Department's experience, it is working in practice? Is there significant traffic in terms of consumer credit problems? Or do the arrangements as I suspect now generally meet the need? Will he also clarify the future reviewing arrangements, in terms of amounts and coverage?
I do not ask those questions in a contentious spirit. It is not beneficial as the new Administration has to some extent conceded to create more regulations, even if Ministers sometimes can and do claim that regulations help the customer. That may be the case, but regulations should be seen as appropriate in context. Any concomitant costs on providers of consumer credit those costs, which I concede are modest, are set out in the assessment administrative costs incurred by proceeding through regulated business or anomalies between regulated and unregulated business are the stuff of ministerial decisions. Regulation must deal with needs and offer appropriate remedies. It should not manufacture needs where they do not exist or offer unnecessary remedies.
On behalf of the Opposition, I give a fair wind to the concept of the order I am not advising my hon. Friends to vote against it. Ministers should be alert, however, to the need not to create unnecessary regulation and to ensure that regulation works in the smoothest and most cost-effective way and is properly reviewed from time to time, with a view to securing those uncontentious objectives. We look forward to the Minister's response.
4.41 pm
Mr. Nigel Griffiths: I welcome the comments and the broad support of the hon. Member for Daventry. I shall respond briefly.
The hon. Gentleman said that it was overstating the case to say that the order offers significant protection to mortgage holders. Those were his words; I said that it offered the first practical steps in that regard nothing more, nothing less. On pawnbroker limits, the hon. Gentleman referred to an increase different from the ones that I mentioned. I referred to those set out in paragraph 118(1)(b) of the Consumer Credit Act 1974, whereas the ones to which he referred are in the consumer credit (realisation of pawn) regulations, which cover a different aspect of the Act. However, I am grateful to him for alerting the Committee to the other limits.
There are no fixed procedures for reviewing the limits, but we shall obviously have to review them when necessary. The proposed inflationary increase, which all members of the Committee welcome, will give consumers a significant degree of extra protection by increasing the limit to œ25,000. That is a practical figure which consumers will find beneficial and with which the relevant businesses, especially the honest majority, will have no difficulty complying.
Question put and agreed to.
Resolved,
That the Committee has considered the Consumer Credit (Increase of Monetary Limits) (Amendment) Order 1998.
Committee rose at seventeen minutes to Five o'clock.
The following Members attended the Committee:
Benton, Mr. Joe (Chairman)
Benn, Mr.
Betts, Mr.
Boswell, Mr.
Goggins, Mr.
Griffiths, Mr. Nigel
Hutton, Mr.
Johnson, Ms Melanie
Kelly, Ms
Miller, Mr.
Townend, Mr.
Tredinnick, Mr.
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