Stakeholder Position: UK Cross-Industry Group on Credit

  

The Finance & Leasing Association, APACS and the Council of Mortgage Lenders set out their views on the Consumer Credit Bill.

1. The Consumer Credit Bill forms part of the biggest shake-up of consumer credit legislation for thirty years.

The UK Cross Industry Group on Credit

2. The UK Cross Industry Group on Credit is an alliance between the main credit trade bodies who have an interest on consumer credit matters. BBA is the main body for the UK banking industry and FLA acts for consumer credit and business finance providers. CCTA also represents consumer credit companies. The credit card sector is represented by APACS. CCA represents the home credit sector. CML acts for mortgage lenders.

Consumer Credit in the UK

3. Whilst signalling the package of reforms to consumer credit laws, of which this Bill features, the 2003 Consumer Credit White Paper recognised the vital contribution the credit industry makes to the UK economy. An innovative consumer credit market has developed rapidly over the past 30 years which has underpinned robust growth in consumer spending, supported growth of the economy and cushioned the impact of subdued global demand.

4. In the vast majority of cases, consumers use credit well – managing and smoothing their outgoings without problems. The Government has also recognised that “the vast majority of consumer credit businesses do treat consumers fairly and reasonably and comply with their statutory obligations”. Areas of concern have been identified, however. And whilst evidence points to the sustainability at the macro level of high levels of total consumer debt, the impact of over-commitment for some individuals is clearly an important issue.

Support for Key Objectives

5. We continue to support targeted measures which genuinely promote competitive, transparent and responsive markets, built on responsible lending. Key focus areas, with which we agree in principle, include:

• fostering greater transparency in consumer finance: clauses 6 to 18.
  
  
• reducing unnecessary red tape (indefinite standard licenses, for example: clause 34).
  
  
• improving consumer redress when things go wrong, with the introduction of the ombudsman scheme: clauses 59 to 61 and Schedule2.

6. We also welcome the retention of the existing limit for business lending (clause 4) and reform of section 127 of the CCA on the enforceability of contracts (clause 15).

Concerns

7. The Bill presents the opportunity to update key parts of the existing law in line with modern markets, modern consumers and modern business practices. In some areas, however, we are concerned that the Bill may have unintended consequences and may hit hardest those in need of the benefit of reforms to the CCA. Areas of concern include the following:

• Unfair Relationships (clauses 19 to 22)

The new approach to tackling unfairness must be targeted and consistent. Lenders need certainty from the outset that their contracts are secure. Consumers with genuine cases need to be clear where they stand. As drafted, the provisions are flimsy on detail and do not provide legal certainty. The Bill does not contain any description or list of the matters that would be considered by a court when determining whether a relationship is unfair. The vagueness of these provisions and their lack of detail is a serious omission which gives rise to concerns about their compatibility with Human Rights legislation.

It is also disproportionate to reverse the normal burden of proof and build the law on the basis that all relationships are, in effect, “unfair” unless proved otherwise. Also, the approach may well backfire, distorting the market by reducing consumer choice, particularly for those with poorer credit ratings.

Retrospectivity of unfair credit relationship provisions to existing loans (Schedule 3) interferes retrospectively with contractual rights. This, together with the increased general uncertainty referred to above, poses a specific threat to securitisation and the entry of new lenders to the market. This is particularly de-stabilising since securitisation is vital to provide adequate supplies of best value capital funding to the market.

• Licensing (clauses 23 – 58)

The licensing powers and sanctions given to OFT under the Bill are wide and unfettered. In particular, the Bill gives OFT an extraordinarily wide power to impose “requirements” on licence holders (clause 38). When looking at identical provisions in the Bill lost before the election, the Joint Committee on Human Rights was concerned at the “entirely unfettered scope of this power” and believed that the provision gave rise to “a significant risk of incompatibility” with Human Rights legislation.

The aim of a more targeted regime should be to lift the burdens on reputable lenders whilst targeting the unscrupulous. It is unsatisfactory that much of the detail on this is missing from the Bill and will be left to OFT and guidance.

• OFT powers

It is striking that the Bill contains no provisions specifying the objectives and purposes for which the OFT must act. Parliament invariably controls the exercise of the discretion enjoyed by a regulatory body by means of such provisions. An “objects” clause (spelling out that OFT must comply with specified regulatory objectives) is an important means of ensuring that the Bill achieves the purposes which Parliament has in mind. It is also a vital means of maintaining Parliamentary control over the OFT. There is no good reason why such a provision should not be included in the Bill.

• Modernisation of HP law

The Bill should update consumer credit law in step with modern markets. Its failure to include proposals to remove the antiquated and arbitrary “half rule” on HP and conditional sale agreements (sections 99 and 100 of the CCA) is a clear omission. The current rule, which costs the motor industry £83 million annually, distorts the credit market and hits hardest those with lower credit ratings trying to buy a new car. The Bill should be amended to axe these outdated provisions.

• Time scale for Implementation

There is very little detail on the face of the Bill – essential to enable lenders to re-configure IT systems and so on. The design, building and testing of IT systems takes around two years, with the benefit of a full specification. Any hasty rush toward implementation would undermine the aims of this legislation.

8. There is also now ample opportunity to consider data sharing – the industry is working with Government to achieve greater data sharing, but to access certain historic data would require legislative change.

- Debt Administration – as drafted, provisions potentially capture a raft of administrational processes (e.g. printing statements), which seems excessive.

9. The consumer credit market in the UK is one of the most advanced and competitive in Europe. We believe that the best result for consumers in the modernisation of consumer credit will be to ensure that the market encourages innovation and access.

If you would like to discuss the Bill further, please contact:

Ashley Holmes, FLA - 020 7420 9606.

Karen Bennell, FLA - 020 7420 9611.

 

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