VARIATION OF AGREEMENTS (Hansard, 19 July 1974)

§ Mr. Tim Renton
I beg to move Amendment No. 21, in page 43, line 53, at end insert: 'and any action by the creditor stopping the right to further drawings under the credit shall not be treated as a separate agreement or as providing fixed-sum credit'. This amendment, which has been suggested to us by the clearing banks, is 887 primarily designed to deal with what can only be described as a disagreement between leading counsel on both sides. The Minister believes that the point made by the clearing banks is unnecessary and he has received legal advice to that effect, but the clearing banks are not of the same opinion.
The amendment is intended to deal with a situation in which, if a bank has given an overdraft to a customer and he overdraws his facility on it—perhaps having issued cheques against uncleared cheques which he has paid in and which are later returned on a refer-to-drawer basis—the bank may decide that enough is enough and that the overdraft cannot continue. The overdraft is then stopped, but at the same time the bank says to the customer that in order to help him it will not take him to court or ask him to repay immediately but will enable him to open a new current account which he must keep in credit. He will be told that he must pay his monthly salary cheques into this account and that sums from it must be transferred to the overdraft account which will be frozen. I am told that this is normal practice by banks.
The banks are worried that the frozen overdraft account, which has ceased to be a running account, will become a regulated agreement for which documentation is needed. The customer, who in such circumstances is clearly in difficulties, may refuse to sign the documentation which the bank presents him with. He could claim that this involved an agreement which had gone wrong and which was not within the provisions of the Bill, and he could endeavour not to repay.
I envisage that the clearing banks, because of the legal advice they have received, will, instead of taking the action I have described, insist, as they have the right to do under the Bill, on the overdraft being repaid as soon as possible. That would be a serious disadvantage to the customer because he would not be likely to have funds to repay and may have to turn to another source of credit to whom he may not be known. In many cases it would be better for the customer if the overdraft could be frozen and a new current account set up, and kept in credit, from which the overdraft is repaid.
888 I remind the House that Mark Twain said that a banker was a fellow who lent his umbrella when the sun was shining but took it away when the rain started. That is not in any way the purpose behind the amendment. The purpose is to enable the banks to continue to provide to a customer who has got into temporary difficulties the sort of alternative help which they have provided in the past, but they may not be able to provide this help unless the amendment is accepted.

Mr. Alan Williams
We have looked at this matter again since our previous discussion, but we are still firm in our belief that the fear put forward on behalf of the banks is not justified. We do not accept that the freezing of an overdraft account changes it into some other form of agreement. It remains a running account agreement.
The sort of situation which the hon. Gentleman envisages, where there is an agreement to set aside a certain sum and make it, in effect, a separate loan account is quite permissible. There is nothing to stop that sort of conversion. We would not wish to stop it. But when a more formalised agreement with an overdraft arrangement is set up it is right that the customer should have the necessary documentation that is normal in such circumstances. We see nothing to stop the freezing of overdrafts. That would not run against the intentions of the Bill. We see nothing to stop the desirable practice of the good management of loan accounts.
12.30 p.m.
Should our advice be wrong, I am sure that evidence would soon be available and we would obviously want to take account of such a situation. However, all the advice that I have from within the Department and from our own legal sources is that the banks are not justified in their concern and that the problem should not arise.

§ Mr. Renton
Does the hon. Gentleman agree that, as circumstances develop, this point will be solved only by litigation? If there is an area of doubt—clearly there is—surely it will end in the courts and lead to the litigation that the hon. Gentleman wishes to avoid.

Mr. Williams
It is inevitable that the situation may arise. I defy anyone to 889 produce legislation and then say that it will not lead to litigation. On occasions that seems almost to be the objective of some legislation. Obviously we hope that the Government's intentions are sufficiently clear to avoid the need for litigation.
If litigation took place and the banks were successful—in other words, if the Government's views on the precise significance of the Bill in this respect were confirmed—the matter would be resolved to absolute satisfaction. If, on the other hand, the banks lost, I should certainly expect them to talk to me or to my successor or the Director General as soon as possible. At present we feel that we must stand by the advice we have been given.

§ Mr. Dodsworth
If we accept that the purpose of the Bill is to protect the consumer, as we have previously tried to make clear, our interest must be to have clarity and certainty in the legislation.
My hon. Friend the Member for Mid-Sussex (Mr. Renton) has revealed only too clearly the areas of doubt and uncertainty in this matter. It is an alarming prospect that we should have distinguished legal opinions which are already in doubt about a matter which is not yet on the statute book. We are seeking clarity for parties. We are seeking clarity for the banks and for the consumers. If there is any possible doubt about legislation in prospect, surely it is desirable that an amendment of this kind should be accepted. The Minister suggested that we should wait and see whether something turns up and that, if it does, we should then do something about it. Here we have a tangible and constructive proposal to remove an area of doubt. I think that my hon. Friend has illustrated the need for the amendment.

§ Mr. Maclennan
I beg to move Amendment No. 22, in page 44, line 14, at end insert: (7) This section does not apply to a noncommercial agreement. This is a move to correct an error that crept into the Bill in Committee when, in the substantial redrafting of the clause, we omitted subsection (5). We still do not want the provisions governing the 890 variation of agreements to apply to noncommercial agreements—for example, agreements between friends.