HC Deb 19 February 1973 vol 851 cc189-200

10.59 p.m.

Mrs. Sally Oppenheim (Gloucester)

The House will be aware of a good deal of public concern with regard to the rates of interest charged by some second mortgage companies and some of the practices of these companies. I should like to bring to the attention of the House the sequence of events that one of my constituents experienced in his dealings with Julian S. Hodge and Company Limited.

Mr. Woolley, my constituent, is a theatre charge nurse, and has spent 47 years in nursing. He is also a British Legion welfare officer and served in the Navy during the war. Mrs. Woolley is of a nervous disposition and has been caused a good deal of unnecessary worry by the events that I shall relate. In December 1967 he arranged for a second mortgage with Julian S. Hodge & Company Limited. He borrowed £350 and agreed to repay £559.80 over five years in 60 monthly payments of £9.33 each plus £10 survey payments and £20 legal fees. The security was a second martgage on his very nice home and garden which appreciated considerably in value over the five years.

The total cost of the loan on top of the sum borrowed was £240, or about 60 per cent. overall, or, according to a rough approximation of the Crowther formula, an effective annual rate of just over 22 per cent It is perhaps interesting to note that the rate of interest on a Julian Hodge deposit account ranges from 6 per cent. to 9 per cent., and so not surprisingly, the company's motto is "Build your savings on a sound foundation".

My constituent had repaid the equivalent of the amount originally borrowed, plus 25 per cent. with 13 more payments to make stretching over more than a year. Although this rate of interest is excessive, especially in the case of a mortgagor well-established in his profession, with what amounted, due to appreciation, to full security on the loan, and although Mr. Woolley could certainly have borrowed this sum from his own bank with no security, and although it would have cost him in all about £130 instead of £240 with no penalty for early repayment, and although this is a matter of great national concern, this is not the main cause for concern in my constituent's case.

The original arrangement between Mr. Woolley and the company was that payments should fall due on the 15th of each month. This is confirmed by the company in its letter to him of 2nd February, 1973. However, there are other letters in existence from late in 1967 which refer to the 6th of the month being the due date for payments. However, although Mr. Woolley's payments were regular apart from one or two delays due to his hours of work as a charge nurse, holidays or illness—indeed, his pattern of repayments was like that of millions of other people and better than most—he received at least 16 reminders or final notices during the period of his loan. That fact has not been denied in letters to me from the company and from Sir Julian Hodge himself.

In addition, on one occasion Mr. Woolley received a reminder and a final demand in the same post. Mr. Woolley also received a letter from the company dated 19th January 1973, which is something of a classic, containing no fewer than four major discrepancies. It claims non-receipt of a payment one year earlier for January 1972 which was paid on 31st January 1972 and for which I have the receipt. The delay of a few days was due to illness. It claims non-receipt of the final payment for December 1972 which had been paid 22 days earlier on 29th December 1972. It complains of underpayment of £1 for June 1971, although this was paid by Mr. Woolley, who could not understand the odd amount but gave the benefit of the doubt to the company. The letter also refers to an outstanding balance of £12.41, again an odd amount considering that the repayments were £9.33 monthly, and which could have had something to do with Mr. Woolley's anonymous visitor, to whom I shall refer shortly.

Upon receipt of the letter containing all these discrepancies, Mr. Woolley wrote to the company to point them out and to ask for the receipt of discharge on his second mortgage, he also having already received a stream of reminders and demands. On 19th January Mr. Woolley consulted his solicitor. His solicitor wrote on 19th January 1973 to Julian S. Hodge and Company as follows: Our client has made all the payments required of him and has paid back the amount of the loan plus interest. He has counterfoils relating to each payment, of which there have been sixty. However, notwithstanding this, you still keep writing to him It therefore seems to us that your records are inaccurate, and should you require to check any payments, you may do so by corresponding with our client direct. We would be grateful if you would confirm that you have put your records in order and also that you have notified the Land Registry that the amount of the loan has been paid. In the meantime, would you kindly refrain from sending our client communications of a demanding nature, as they are causing both him and his wife considerable concern. Should you continue to do so, our client will consider proceedings against you in respect of the worry and inconvenience. When replying would you please send us a remittance for £5, being our charges to date. So far as I know—certainly up to 14th February—no reply whatever has been received by the solicitor, and no remittance of £5.

Mr. Woolley came to see me on 20th January, and I, too, entered into correspondence with the company. I draw the attention of the House to the reminder and demands forms which Mr. Woolley had been receiving. Here is one dated 3rd January 1973: Final demand. Take notice that unless payment of the arrears in full is made to this office by return, we shall take further steps to safeguard our interests. If we do not hear from you and it becomes necessary for our representative to call, your account will be debited with £2". At no time did Mr. Woolley sign and direct agreement purporting to validate the penalty described in the demand form, which is, therefore, so far as I have been able to ascertain, unenforceable and deliberately misleading, even if the demands themselves had been legitimate, which they were not. I hope that my hon. Friend will take particular note of that point.

On one occasion, in January 1971, an anonymous caller came to the Woolley's home, stating that he was from the company, and that the money was owed for that month and must be paid immediately. Mr. Woolley was at home at the time convalescing, and, in his own words, he saw him off. But this visit could account for the odd sum claimed by the company in the letter of 19th January 1973 to which I have referred.

In a letter to me, Sir Julian Hodge, whose replies have always been prompt and courteous, suggested that such demand notices, including the threat of a charge, were not unduly harassing, and he even suggested that this was a local authority practice, adding that I might check with the local authorities, which often did this when collecting rates. I have ascertained that it is not so, and I have not been able to trace one local authority which carries out this practice.

Even more surprisingly, Sir Julian in his letter to me seeks to discount the harassing nature of these demands further by attributing them to computerised machinery methods. In fact, Mr. Woolley claims—I have not seen it myself—that the threat was stated also in typewritten letters.

To add further to the general confusion, I received a letter from the director and assistant manager of the company on 2nd February which referred to yet another alleged non-payment not previously mentioned in any of the letters. It was said to relate to May 1971, for which payment had in fact been made on 8th June 1971. The latest letter I have received from Sir Julian, dated 9th February, refers to postal delays as accounting for the fact that reminders were sent out after payments had been made, and in particular, with regard to Mr. Woolley's final payment following which he received a reminder and demand in the same post, Sir Julian's words were, And you know what can happen to the Christmas mail". Mr. Woolley has wryly pointed out that the postal delays appear to be all in one direction, because there were no delays in the stream of reminders and demands which came to him.

Coincidentally with my letter from Sir Julian, Mr. Woolley received a letter from the managing director apologising for what he described as the unfortunate omission of the final payment, though he did not mention any of the other omissions to which I have referred.

Finally, on 13th February 1973, Gloucester Land Registry received the discharge of Mr. Woolley's second mortgage, some six weeks after his final payment, and after correspondence from his solicitors and from me, although Mr. Woolley has not yet been advised by the firm that the debt has been discharged.

I am sure that the House will agree that Mr. Woolley, who is both articulate and literate, was subjected to confusion as to due dates, inaccurate accusations of underpayment, unjustified reminders and demands, invalid penalties and delay in the return of his second mortgage receipt, all of which caused inconvenience, distress and expense. How much worse would this have been in the case of someone inarticulate and not literate, widows and elderly persons with no one to whom to turn for advice, who could have been caused real distress and hardship?

It was in his capacity as a British Legion welfare officer that Mr. Woolley brought this case to me to express his concern. I believe that it is a legitimate concern. I would ask my hon. Friend to consider this and to say what action can be taken with regard to the misleading form of demand to which I have referred.

Finally, I should like to emphasise that I do not believe that the harassment was deliberate in the case of Mr. Woolley but the result rather of an imperfect system of debt collection which seems more concerned with the quick-off-the-mark aspect of the problem and with making misleading demands than with consideration of clients.

Mr. Elystan Morgan (Cardigan)

I am grateful to the hon. Lady for giving way. I accept that there are facts disclosed here which may well be profitably probed by a county court in a similar action, and I express appreciation for the hon. Lady's solicitude for second mortgagors, which does her nothing but credit. However, would she not agree that Mr. Woolley seems to have shown great confidence in Sir Julian Hodge by having applied for shares in his Bank of Wales at a later date?

Mrs. Oppenheim

The hon. Gentleman is wrong. Mr. Woolley came into an annuity amounting to £5,000. With his tongue in his cheek he wrote to Sir Julian Hodge to ask what his rates of interest would be if he were to deposit that money. He could have been forgiven for thinking that the rate of interest might be about 15 per cent.

11.12 p.m.

Mr. Peter Fry (Wellingborough)

I am grateful to my hon. Friend the Member for Gloucester (Mrs. Sally Oppenheim) for permitting this intervention. I declare straight away that I am a director of an insurance broking firm which arranges mortgages.

Most people in the insurance and mortgage world are deploring the bad name that the activities of some operators are giving to the personal loan market. I was indebted to the Birmingham reporter, Mr. Chalmers of the Daily Mail, who provided me with a similar case to that which my hon. Friend has mentioned.

Briefly, my constituent, a 60-year-oldwar widow, saw an advertisement in the Northamptonshire Evening Telegraph regarding loans. She wished to borrow £400, and she replied to the advertisement. A local broker saw her and told her that she would have to repay £11.45 a month. She has told me that in the first place she was never told what the rate of interest was. There is no rate of interest mentioned on the agreement form. The broker, a Mr. Pullan, said "I never work out interest rates for people. It is not in my interest to say how much they are paying on the loan." Therefore, it is hardly surprising that she was not aware of the rate of interest. Nor was she aware of the total charges. She finally received £371 and discovered that she had to repay £962.

Secondly, she was not aware of the term of the loan. She imagined that it was for some three years. It turned out to he 84 months. Further, she was not even aware that the lenders were Julian Hodge. This is not surprising because this transaction went through no fewer than four individual brokers before it ended up with a cheque from Julian Hodge. Even then the cheque did not come from Julian Hodge to my constituent; it was paid to one of the intermediate brokers, and she received a cheque from Harper Finance.

It would appear that on the way some £75 had been added by way of commission and charges to the original £400 that my constituent thought she was borrowing. She has to pay interest over seven years on that additional £75.

When she fell behind with her payments she had a rude letter, a notice of foreclosure, and bailiffs at the door. It was only after the case was being investigated that Julian Hodge sent a somewhat milder letter which contained a rather interesting phrase: I wonder if you are aware of the fact it should be possible to get some help with the interest proportion of this loan from the Social Security people. It would be well worth your while having a chat with the officials concerned. I do not see why the taxpayer should help support such a system, or Sir Julian Hodge, even if he does have members of the Opposition Front Bench as his fellow directors of the Bank of Wales.

Mr. Elystan Morgan

Humbug. The hon. Gentleman should look to his own side.

Mr. Fry

We so often have the charge hurled at the Conservative benches that it is refreshing to be able to hurl it back.

A case has been made out for certain remedies. First, the full charges and term of any loan should always be made clear. Secondly, the cheques should be paid to the borrower, and not a third party. Too many operators allow brokers to put in their own charges, which are added to the loan, and the poor borrower has to pay interest on them. There is cause for action, and I have great pleasure in supporting what my hon. Friend has said.

11.16 p.m.

The Under-Secretary of State for Trade and Industry (Mr. Peter Emery)

I am grateful to my hon. Friend the Mem- ber for Gloucester (Mrs. Sally Oppenheim) for raising the matter of second mortgages. Perhaps she will forgive me if, before dealing with the details, I say that the debate allows me to state clearly a number of things about consumer credit and particularly borrowing on second mortgages.

First, the Government have made it clear on a number of occasions—I repeated it in the debate in the House on Access credit cards and have done so in Committee on the Fair Trading Bill—that they accept the recommendations on consumer credit outlined in the Crowther Report. We intend to introduce legislation on the matter as soon as possible.

Until the law is passed, however, I believe that, because problems obviously arise on matters of second mortgages, a voluntary code should be adopted by those who are lending money to the public.

First, the total money cost of the loan should be clearly shown, and this should include all the extra charges that are to be made.

Secondly, the true and total charge on the loan should be made absolutely clear and stated in percentage terms per annum. This should be calculated on a reducing balance basis.

Thirdly, any other charges that can arise during the life of the loan should be clearly stated.

Fourthly, there should be a confirmation clause in the contract so that the borrower is given a few days to think over the obligation he is undertaking, if necessary obtaining other advice, and, if he wishes, then withdraw without charge from the contract.

Fifthly, the contract should state clearly what charges remain to be paid if the borrower settles or repays the loan at times earlier than set out in the contract.

Sixthly, if any brokerage commission is paid there should not be any additional charge made to the borrower. That deals particularly with the point made by my hon. Friend the Member for Wellingborough (Mr. Fry).

These six basic rules would go a long way to give guidance to would-be borrowers. If applied, they would direct business to those companies which were honest and forthright in their approach. This would act as some protection for the customer from those who squeeze exorbitant rates of interest out of borrowers. It would help the many borrowers who never really realise the size of the charges or the rates of interest they are being called upon to pay.

The acceptance and the carrying through of such a code would do two things. It would safeguard the firm from unreasonable attack by critics of consumer credit, and it would act as a safeguard to the borrower, who could see whether the firm from which he or she intended to borrow was living up to the specifications of the code.

The voluntary nature of the code should fairly quickly separate the fair from the unfair lending companies. It would allow customers to compare what one company was providing with another, which is very far from evident today.

This voluntary code would be of assistance to the public, and it would reflect the principles on which legislation will be introduced. When I consider this code, I have, naturally, to think of legislation. However, it will be recalled that the Crowther Committee recommended most strongly that there should be no more piecemeal legislation on consumer credit.

The legislation which we are preparing will be comprehensive and will necessarily be complex. It will involve repealing the Moneylenders Acts and the Pawnbrokers Acts, and at least substantial revision of the Hire Purchase Acts, as well as minor revision of several other Acts. This outline shows the complexity of existing laws and illustrates why this matter cannot be dealt with by quick or simple legislation. Thus, I believe that a voluntary code subscribed to by the industry would be helpful to the industry and act as a most useful safeguard to the borrower.

To turn to my hon. Friend the Member for Gloucester, it appears that in this case a certain amount of confusion arose.

Mr. Eric S. Heifer (Liverpool, Walton)

rose—

Mr. Emery

I am sorry. I will first deal with the case and then if I have a moment—

Mr. Heffer

I want to ask only one simple question.

Mr. Emery

First I must reply to my hon. Friend.

Over the period of this loan the company claims that Mr. Woolley appears to have fallen behind on certain of his repayments, and reminders were sent to him. I do not think anyone questions the right of lenders to send reminders. We must realise that more and more companies are using computers or other forms of automatic machinery for mailing invoices, accounts and reminders. The company claims that Mr. Woolley fell behind, while Mr. Woolley claims that his payments were made. What is not in doubt is the use of computers.

The companies which are operating computer systems should be aware of the dangers inherent in them, and it is up to them to ensure as far as possible that mistakes and errors are not made and that consumers are not put in an embarrassing position because of the mechanical failure of automated processes. There was an apparent mix-up about the final payment, and I do not wish to comment on who was to blame for this.

I have examined certain papers relating to the case. It can be argued that the company behaved not unreasonably in sending reminders in respect of repayments that had not been made on the due date. The real question appears to be that the company made a claim for £2 in the final reminders. Is this legal? That depends entirely on the terms and conditions of the contract that Mr. Woolley signed. Was the demand for £2 so phrased as to make the final demand notice some form of harassment?

The House has already considered harassment of debtors and has made unreasonable harassment a criminal offence under Section 40 of the Administration of Justice Act 1970. Does the demand for the £2 come within the provisions of this Act? Obviously, any such consideration is a matter not for me but for the courts. I suggest that if this was the reminding of a debtor of his liability to such a charge it was not unreasonable.

However, everyone must be concerned about the high rates of charge for second mortgages. I have before me illustrations from Money Which? which show that the true rate of interest charged by First National Securities was 27.5 per cent., by Evergrowth Investments, Liverpool, 29.4 per cent., and by Julian S. Hodge, 30.3 per cent. Complaints were made to the Department of Trade and Industry, quoting cases where the true rate of interest charged by Julian Hodge was 26 per cent.; the Turret Mortgage Company, true rate of interest 26 per cent.; Julian Hodge, true rate of interest 30 per cent.; and another true rate of interest, if all charges are put on top of the actual rate of interest, is that of Julian Hodge at 45 per cent. Therefore, the whole House must be concerned at the very high rates of interest for this sort of borrowing.

I want to devote some few minutes to the general principles as I see them.

Mr. Elystan Morgan

The Mr. Woolley referred to by the hon. Lady the Member for Gloucester (Mrs. Sally Oppenheim) made an application for £5,000 worth of shares in the Bank of Wales, owned by Julian Hodge. No person on this side of the House, with the sole exception of the Leader of the Liberal Party, is a director of or in any way concerned with the hire-purchase company or a moneylender's concern.

Mr. Emery rose—

Mrs. Sally Oppenheim rose—

Mr. Emery

I am sorry, but time is short. In reply to the hon. Member for Cardigan (Mr. Elystan Morgan), I understand that a letter was sent to Julian Hodge inquiring what the rate of interest would be for an investment. Whether that investment was to be made or whether it was to find out the difference between the interest paid for an investment and the high rate of interest charged to a lender is a matter I do not wish to become involved in.

The Crowther Committee believed that second mortgage loans should be treated on a par with all other loans and subject to the same requirements regarding disclosure of essential information, including the rate of charge, provision of copies of documents, and a requirement on the lender to grant at least a minimum rebate of charges when early settlement is made.

The Crowther Committee also proposed a licensing scheme for all credit grantors and their intermediaries, which would include mortgage brokers. The Government accept these recommenda- tions and propose to implement them. At the same time, the Government are by no means sure that in respect of second mortgage lending the Crowther Committee's proposals go far enough.

We are carefully examining the matter to see whether additional protection is needed. The Crowther Committee proposed that the cooling-off period now imposed on hire-purchase transactions where the agreement is signed away from trade premises should be extended to all forms of lending. For second mortgage lending, we believe that it should be extended further still to cover transactions signed on trade premises as well as off them.

We are giving a great deal of attention to this problem, for we accept that a loan secured on a borrower's home can cause great distress if the lender acts in any way unreasonably and puts the home of the man or his wife and family at risk.

In this respect, I want to make a few comments on some of the areas of concern and to suggest where consumers who feel they need a loan and who are willing for this to be secured by a second mortgage on their home should take care.

As a first step, consumers should examine very carefully whether borrowing on second mortgage is the most advantageous method of borrowing. There is a general precept in the lending industry that a fully secured loan should be cheaper than an unsecured loan, and I am distressed to see that several lenders who are making fully secured second mortgage loans are charging a far higher rate of interest than is charged on some unsecured loans.

Many consumers are either being introduced to a second mortgage lender or are being induced to take out a second mortgage by a mortgage broker. Very often the literature produced by mortgage brokers does not reveal that they are only intermediaries and not the lenders.

The Question having been proposed after Ten o'clock, and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twenty-nine minutes past Eleven o'clock.