NEED FOR DEFAULT NOTICE (Hansard, 19 July 1974)

§ Mr. Tim Renton
I beg to move Amendment No. 23, in page 46, line 21, at end insert: (2A) Subsection (1) applies only where—
(a) a period for the duration of the agreement is specified in the executed agreement, and

(b) that period has not ended when the creditor or owner does an act mentioned in subsection (1) but so applies notwithstanding that, under the agreement, any party is entitled to terminate it before the end of the period so specified.
The wording of the amendment is exactly the same as the Government's amendment to another clause. The wording appears in Clauses 76 to 99. It was put in by the Government in response to the points made strongly by the clearing banks that on overdrafts which, by agreement and regulation, are exempted from the Bill there should be repayment on demand.
I know that my hon. Friend will join me in thanking the Government for accepting those amendments in Committee. If they had not been accepted, the whole ability of the banks to grant facilities for overdrafts which are available and repayable on demand would have been brought into serious doubt. If this matter had been thrown into doubt the interest costs to customers would have risen because these are the cheapest borrowing facilities available to them.
We want the amendment added to the clause for the simple reason that in the other clauses I have mentioned repayment on demand is allowed to the bank where a customer is not in default.
Clause 87 covers the situation where the customer is in default. In that case the bank will not have the possibility of claiming repayment on demand. This is a mind-boggling situation. It seems odd that where a customer is behaving himself in accordance with the terms of the facility granted to him the bank can claim repayment on demand, yet in circumstances, which I described earlier when moving another amendment, where the 891 customer may be in default the bank will not be able to claim repayment on demand.
This could have serious effects on customers. Where the security was shares on the stock market and the bank manager saw their value falling every day—this would apply even more where the security was perishable goods—the bank would not be able to obtain the best possible value on the customer's assets that had backed the loan given to him until the seven-day notice period had expired. This could have a poor effect on the realisable value of the customer's security that had been lodged with the bank.
In Committee the Minister's main objection to accepting that repayment on demand should be available where there was default was that there might be a computer mistake—that it might spew out information to suggest that the customer was at fault when he was not. With respect, that is a totally fallacious argument. If the computer reported that a customer was at fault when he was not and the bank consequently disposed of his security, once the fault was established the bank would have to repurchase the shares or the asset for the customer. I cannot believe that any bank in those circumstances would not act immediately in that manner. The amendment seeks to rectify that strange and anomolous position.

Mr. Alan Williams
Perhaps I may attempt to unboggle, if there is such a term, the hon. Gentleman's mind. There are two completely different situations here. The bank covers a situation where, for example, in the case of a special deposit, it has a change in liquidity requirements and has to call in loans. That is an exigency upon the service and it is one of the hazards of that form of loan. We are dealing with the situation in which there is no monetary or economic need for the money to be called in. The loan is called in simply because the individual is in default. That being so, it is reasonable that he should have a right to remedy that default.
The hon. Gentleman regarded the computer error argument as fallacious. The hon. Member for Gloucester (Mrs. Oppenheim) has on many occasions com- 892 plained about the billing procedures and the problems that arise from computer errors. I assume that the banks' computers are as "human" as any other computers and are just as likely inadvertently to throw up an error. But errors arise in several ways. A payment that is due to be made may be overlooked. Perhaps someone who was supposed to put a cheque into the account on behalf of a customer forgot to do so. To go to the extreme of calling in the loan when there may be a simple explanation and a simple remedy would be to go too far. The customer is entitled to a chance to remedy the default, especially if it is not a default but an error.
Despite all that has been said, where there is a default of the kind envisaged by the hon. Gentleman the bank already notifies the individual of the default and does not automatically call in the loan. I suspect that we are trying to formalise an activity that most good bank managers would automatically undertake.

§ Mr. Tim Renton
I agree with the Minister's last remark. In practice, when there is a default the bank will normally notify the customer and give him time to remedy it. But surely that destroys the validity of the Minister's argument. He implied that a bank, because of a change in its liquidity requirements, may suddenly wish to rearrange the ratio of security to debt. Instead of having a 50 per cent. margin, the bank might require a 100 per cent. margin. It is inconceivable that, because the bank was making an internal readjustment, it would at that moment call in an overdraft. Nor at that moment would the customer be in default because of a rearrangement of the overdraft terms.
I come back to my basic argument that there is logical inconsistency in repayment on demand being available to the bank for customers who are not in default but not for customers who are in default.

Mr. Alan Williams
With the permission of the House, Mr. Deputy Speaker. As the hon. Gentleman is looking for logic and consistency, may I resort to a different tier of argument? It is clear that our minds to not match on morality vis-à-vis default. The amendment does not do what the hon. Gentleman wants to do. I tried to spare him this slight to his drafting capacities. The amendment refers 893 to the executed agreement, but the bank will not have an executed agreement for an overdraft. Even if the hon. Gentleman's argument were correct, the amendment could not be accepted, and it does not achieve what he intends to achieve.