§ (1) Where—
- (a) a charge upon a policy of life assurance is given as additional security for an advance made by a building society, or
- (b) a building society makes an additional advance to enable payment to be made of a premium on a policy of insurance, or
- (c) any policy of insurance is taken out so as to comply with the terms on which an
925 advance as made by a building society, whether by way of insuring the property given as security for the advance or otherwise,
§ (2) A person who pays, and a person who accepts, any gift, bonus, commission or benefit which it is unlawful to receive under the foregoing subsection shall be liable on summary conviction to a fine not exceeding fifty pounds or to imprisonment for a term not exceeding six months.—[Mr. Barber.]
§ Brought up, and read the First time.
§ Mr. Speaker
It seems to me that it might be convenient if discussion on this proposed now Clause were extended to cover discussion on the proposed new Clause "Officials not to accept commissions &c. on certain insurances"—Section twenty-three of the Building Societies Act, 1894 (which prohibits the acceptance by certain officials of certain gifts and the like), shall apply in relation to any policy of insurance effected as security for or in connection with any loan made by a building society as it applies in relation to such a loan.
§ Mr. Barber
Do I take it, Mr. Speaker, that the Amendment in the name of my lion. Friend the Member for Brierley Hill (Mr. Talbot) to the Government's new Clause—in line 13, at end insert:(2) Provided that this section shall not apply to a policy of insurance against fire risks.—if it is to be called, should be discussed at the same time? I think it would be convenient. I do not know whether that is your intention.
§ Mr. Speaker
Yes, it is my intention to call that Amendment. I am obliged. If the House so wishes, I think that course would be convenient.
§ Mr. Barber
This proposed new Clause follows an undertaking which I gave in Committee to consider points which were raised by the hon. and learned Member for Kettering (Mr. Mitchison). As you indicated, Mr. Speaker, lie and his hon. Friend the Member for Widnes (Mr. MacColl) have tabled a new Clause dealing with the 926 same matter. The Government's Clause deals with the case which the hon. Member for Widnes mentioned in Committee. where a society nominates an insurance company with which a policy has to be taken out and the commission on the policy then passes to the directors. That is the point that he was making.
We agree that this practice seems in general—although, of course, there are exceptions—to be undesirable, and, as the hon. Member for Widnes pointed out. there may be a suspicion that the reason that a particular insurance company is nominated is because the directors or officers would receive a commission and not because it was in the financial interests of the society or that it was necessary for the society to be satisfied as to the soundness of the insurance company. There need, of course, be nothing morally wrong in an officer receiving such commissions. I do not think anyone in the House will dispute that. The society may know what is taking place and may take the commissions into account when fixing the officer's remuneration.
I was abroad yesterday and I have only this morning had an opportunity of considering the Amendment in the name of my hon. Friend the Member for Brierley Hill, although he was courteous enough to write to me at some length yesterday about it. I have considered it with care. Of course, I quite accept the view which, I imagine, he would express, that there is really nothing necessarily morally wrong in the sort of case he has in mind and which he wishes to cover by his Amendment. Having said that, however, I hope that the House will agree that, if we were to accept the Amendment, it would in certain circumstances be open to abuse. It is always possible for the commission to be paid direct to the society and for the remuneration of the secretary to be increased accordingly so that the secretary is no worse off. I hope that my hon. Friend will, after hearing those brief comments, decide not to press the Amendment.
I ought to say that the Government's new Clause differs from the hon. And learned Gentleman's new Clause in certain respects. In the first place, it definesinsurance…in connection with any loan927 more closely. It is intended to cover three main classes. If the House wishes, I will go into them in detail, but I think they are fairly clear from the terms of the new Clause itself. There is a second difference between the two new Clauses. The Government's new Clause limits the prohibition to cases where the society effects the insurance on the borrower's behalf or nominates the insurer. I hope that the House will agree that the hon. and learned Gentleman's new Clause does go, perhaps, a little too wide. For example, a potential borrower might wish to take out a life insurance policy as additional security and might go off, with the society's concurrence, to approach an insurance company himself. He might by chance happen on a company the local agent of which was a part-time director of the building society. The borrower might well be ignorant of this fact and the insurance agent might equally be unaware of the purpose for which the policy was required. Therefore, even by taking the normal commission in good faith, the agent would commit an offence.
It might be possible by drafting to avoid that difficulty in the context of the hon. and learned Gentleman's new Clause, but even if the borrower or the agent is aware of all the facts, I suggest that it is not at all clear that it would be wrong for the agent in such circumstances to take the usual commission for carrying out his normal business.
There is a third difference between the two new Clauses. The Government's new Clause is not linked to Section 23 of the Building Societies Act, 1894. That Section deals primarily with cases of bribes given to officers to get an advance, and the assumption is that they are taken without the society's knowledge. The present proposal is rather different. For instance, in many cases the commissions are taken with the society's knowledge and approval, and I think this does not fit very well into the framework of Section 23 of the 1894 Act.
I hope that, after hearing that explanation of the Government's reasons for their new Clause, the hon. and learned Gentleman and his hon. Friend 928 the Member for Widnes will feel that we have gone a long way to meet their point. I commend the new Clause to the House.
§ 11.15 a.m.
§ Mr. James MacColl (Widnes)
It is very pleasant to be able to start our consideration of the Bill in a warm and cordial atmosphere. It is very pleasant to find the Government going further than they had agreed. The Economic Secretary's undertaking, which was very carefully worded, left me rather doubtful whether or not they would really do anything on Report. That was really why my hon. and learned Friend the Member for Kettering (Mr. Mitchison) and I thought it wiser to put down a new Clause ourselves. I say at once—I speak for my hon. and learned Friend as well—that, in view of the handsome way in which the Government have met us on the point, we shall not seek to press our new Clause. As the hon. Gentleman has said, there are certain differences between them. If I was in a niggling mood, I could pick some holes in the Government's new Clause, but, for all practical purposes, it meets our principal point.
As I said in Committee, we recognise that building societies are not the only sinners in this matter. It is a deplorable practice of landlords and mortgagees in general, including local authorities, to use their position and power, because theirs is the money to be lent or the property to be let, to interfere with free competition and to interfere with the freedom of the person dealing with them to choose among insurance companies. That is the general principle. I regard that practice as wrong.
If it is generally wrong, it is quite indefensible when it is accompanied by financial gain to the person exercising his power in that way. It is quite shocking that, in a negotiation of this sort, someone—in this case the person who is going to lend the money—should, knowing that he has the borrower at his mercy, seek to force him to go to a particular insurance company because he will receive a rake-off from the insurance company. No amount of equivocation can get over the fact that that is deplorable. As I say, I do not seek to dig at building societies, particularly because they are no worse in this respect 929 than a great many other bodies which ought to know better.
The Government's new Clause meets our main point, which is that, where there is a nomination or selection of a particular person to do the insurance, no commission shall be obtainable by the officers of the society. I take it that that does not mean that, where a choice of reputable companies in which the society has confidence is offered, where a list is offered for the borrower to make a choice, that will be covered. I do not quarrel with that arrangement. It is the monopoly I complain about, not the general desire to ensure that property is effectively insured or that the person is effectively insured.
I hope that the Economic Secretary will hold his hand or his arm, harden his heart, or steel himself—whatever is necessary—to resist the Amendment to the Government's new Clause which stands in the name of his hon. Friend the Member for Brierley Hill (Mr. Talbot). It is, I think, quite inconsistent with the wording of the new Clause, which speaks specifically of safeguarding the security. The most obvious way in which one will want to safeguard a security is to prevent it from being burned down or to insure it if it is burned down.
Nobody would quarrel with the desire of a society to ensure that a property is adequately insured against fire risks and insured with a company which can act honourably and honestly, a company in which the society has confidence. The complaint arises where the society seeks to specify a particular company and, in addition, a commission is received as a result, because, although the society may be acting with the best possible motives, front the point of view of the ordinary person looking at the transaction, the thing stinks. A person in a position to exercise power over a borrower obtains private gain when he is ostensibly merely trying to safeguard the security.
My hon. and learned Friend and I thank the Economic Secretary very much for meeting us as far as he has. The new Clause will be a very valuable addition to the Bill, and it will put us in a good temper for the rest of the day.
§ M r. John E. Talbot (Brierley Hill)
I have put down my Amendment to the proposed new Clause for two reasons.
930 The first is to clarify beyond measure that the Clause itself did, in fact, apply to a fire insurance policy, because, in my view, the wording of subsection (3) might give rise to the possibility of an ejusdem generis construction and, in fact, a fire insurance policy would not come under the Clause. I think that this debate has created no necessity for a High Court action on that point.
My second reason was to rebut the suggestion of the hon. Member for Widnes (Mr. MacColl), who said in Committee:It is a most improper use of the power of a landlord or a lender, whoever it may be, to try to create a monopoly for a particular insurance company."—[OFFICIAL REPORT, Standing Committee D, 14th July, 1960; c. 311.]I am perfectly certain that I am speaking for the whole building society movement when I say that that is not the reason. The reason for a tied insurance scheme required by anyone, whether by a building society, a local authority or a big landlord, is to save administrative costs. I should like to tell the hon. Member for Widnes that we did in fact in my small society at one time allow members to insure where they would, and also on the Kidderminster Corporation, where I was responsible for organising the scheme of lending, we allowed borrowers to insure where they would; but we had to abandon the practice because we could never find out whether the policies were being renewed. Letter after letter had to be written to borrowers asking them to produce renewal receipts for their policies, but they did not answer. Anyone with the slightest experience of operating a fire insurance agency must know how difficult it is to collect these small periodical payments.
If there is any suggestion that the commission of a fire insurance agency is a large, remunerative and secret means of acquiring assets, I can assure hon. Members opposite that the commission allowed barely covers the cost of the staff, paper and postages in getting the work done. The bogey which they so greatly fear is non-existent.
I am obliged to the Economic Secretary for, as it were, disclosing to me means whereby both he and I can feel happy about the matter. As he says, it is possible for societies allowing directors and managers to receive insurance 931 commissions to alter their arrangements so that the same thing happens in another way. In view of that, and for the sake of the general approval, which I hope the Bill will receive in its final passage through the House, I shall not move my Amendment.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.