§ Mr. John Fraser (Norwood)
I beg to move,That an humble Address be presented to Her Majesty, praying that the Consumer Credit (Exempt Advertisements) (Amendment) Order 1980 (S.I., 1980, No. 1359), dated 8 September 1980, a copy of which was laid before this House on 15 September, be annulled.
§ Mr. Deputy Speaker (Mr Richard Crawshaw)
I take it that it was the intention of the hon. Member for Norwood (Mr. Fraser) to propose discussing at the same time the other two motions on this subject—matter—That an humble Address be presented to Her Majesty, praying that the Consumer Credit (Advertisements) (Amendment) Regulations 1980 (S.I., 1980, No. 1360), dated 8 September 1980, a copy of which was laid before this House on 15 September, be annulled.That an humble Address be presented to Her Majesty, praying that the Consumer Credit (Quotations) (Amendment) Regulations 1980 (S.I., 1980, No. 1361), dated 8 September 1980, a copy of which was laid before this House on 15 September, be annulled.
§ Mr. Fraser
If that will be convenient, yes, Mr. Deputy Speaker.
The Opposition do not propose to press the motions to Divisions, but they provide a convenient opportunity to consider the progress of a very important part of the Consumer Credit Act and its implementation, and I have a few comments to make and one or two questions to ask about the regulations.
The first matter relates to the speed at which it has been possible to implement the Consumer Credit Act. It is one for which I bear rather more responsibility than anyone else. However, I think that we are entitled to think aloud on these matters.
The Royal Assent was given to the Consumer Credit Act on 31 July 1974. Six and a bit years on, on 6 October 1980, the regulations, together with some others, including the total charge for credit regulations, came into force, and still only a portion of the total Consumer Credit Act has come into effect. We are entitled to ask ourselves—and not merely to question the competence of Governments, because both Governments have worked on the legislation—whether we have got the legislative process wrong if it has taken six years to get to the 1044 making of these regulations and there is still a great deal more to follow.
The Consumer Credit Act was widely advertised as being "Truth in lending". Those are the words of the present Chancellor of the Exchequer. The Labour Government, who introduced the Consumer Credit Bill for the second time, used the same advertisement for their legislation. Yet it was only on 6 October of this year that we began to get "Truth in lending" in advertisements and quotations, and we have not yet got it in the agreements themselves. We are entitled to ask ourselves by way of self-examination why it has taken so long to implement the Act and why the pace of progress is so slow.
The regulations fit together, but I should like to see them coming along for rebates for early settlement, for example. One of the most extortionate parts of money lending practice is where someone pays off a loan early and is not able to get suitable rebate, where the period for notice of redemption is far too long, or where calculations of rebate are done in a way which suits the lender rather than being utterly fair to both parties. My question, therefore, is to ask whether the Government have any reflections about the time which it is taking to bring these matters into force.
Secondly, I wonder whether the Government have any reflections on the complexity of these regulations. We see a reference to the total charge for credit regulations, one of which contains a fraction which is insoluble except with the help of a computer which has an iterating device. When I tried it out on a computer, I made 12 or 13 attempts to get the right answer. That illustrates the degree of complexity which the regulations have reached.
There is the difficulty that if a simple principle is incorporated in regulations it gives rise to absurdities such as the one of including the premiums for endowment policies in the total charge for credit and in some circumstances getting a negative rate of interest. That was possible. If a regulation incorporates a simple principle, it leads to absurdity. However, if an attempt is made to avoid the absurdities of a simple principle being applied and exceptions are made, the result is a regulation of absurd complication. It is difficult to choose between 1045 them under our present legislative system.
When we deal with advertisements other than advertisements for credit, both Administrations have taken the view that the best way of dealing with the control of advertising is by means of a code of conduct. However, it would be impossible to translate into legal language the rules about advertising medical products or the rules about misleading advertisements which are applied by the Advertising Standard Authority and place upon the advertiser the obligation to respect the spirit of the rules as well as the letter of the rules. In Europe, where the Government are still discussing a draft directive on advertising, both Administrations have said that that method of a legal code dealing with the control of advertisements is not possible. Yet, when we come to rules about advertising for credit, we have placed on ourselves extremely complicated regulations which are not easy to understand.
I spent several hours reading the definitions of "simple", "intermediate" and "full" advertisements. Within a few hours, I had forgotten them again. I am in the same difficulty as anyone else. I am not in any way criticising, because I bear as much responsibility for these matters as anyone, but is any thought being given to the simplification of these regulations and perhaps to a different approach, even if it involves changes in primary legislation?
I asked whether the Government had any thoughts about simplifying the Consumer Credit Act because the next set of regulations to which we shall probably come are those relating to the entry and content of agreements. The great danger is that we shall get into an area where people are more concerned about the form and ritual of an agreement than with providing full information for the consumer. The exercise will be more concerned about whether documents were exchanged in the right order rather than drawing the attention of the consumer to the contents of the documents.
The Minister will know that there has been a good deal of criticism about the quotation and advertisement regulations in that they apply to finance houses and clearing banks but do not apply to building societies, insurance companies and local authorities in relation to loans 1046 for house purchase. The banks and finance houses believe that this is an unfair discrimination against them. The Consumers Association, to who I have spoken, think that it would be right if the same rules applied to building societies as well as to finance houses in respect of advertisements and quotations. My view is that it is better to have the same rules for advertisements.
When it comes to quotations, there are already many statutory requirements for building societies to give information to consumers about the loans that they are to take. Consumers getting a loan from a building society, insurance company or local authority are likely to have separate legal advice. I can understand that there is less need for quotation regulations applying to building societies and insurance Companies. On advertisements however, the same code of conduct should apply to societies and to finance houses.
That is not to say that I have seen many advertisements from building societies offering to lend people money to purchase houses. They generally advertise to take deposits. Good luck to them. The difficulty may be more hypothetical than real. There is some substance in what the Finance Houses Association says in relation to advertisments:The effect of these exemptions is that any advertisement of mortgage facilities by a finance house or a bank must, if it quotes a rate of interest, quote that rate as calculated according to the formulae prescribed in the Regulations—the true rate of charge. But an advertisement of mortgage facilites by a building society or an insurance company need not do so. Even though the mortgage may be identical, even though the rate may be identical, such advertisements may quote an apparently lower rate.If that turned out to be the case, the association has a point of substance.
Another question I wish to put relates to the recent Monopolies and Mergers Commission's report on credit cards. Almost immediately after publication of that report, garages, in particular, but perhaps also other institutions, have begun to make a surcharge for the use of a credit card. If one takes the literal interpretation of the total charge for credit regulations which, in turn, affect the quotation and advertisement regulations, I believe it is right to say that the 15p charged on the purchase of petrol at a garage alters the total charge for credit 1047 and invalidates the quotation given by the credit card company when it issues its statement and gives the total charge for credit. It is possible that 15p is within the margins of error and makes no difference, but it illustrates the difficulty of the existence of complex regulations in a situation in which credit card companies have no control. The companies cannot know what charge is being made by the garage proprietor.
Another question that arises is whether advertisements, at a filling station, of an extra 15p surcharge for use of a credit card is a simple credit advertisement. I do not think that it is. Is it an intermediate credit advertisement? Is it a full credit advertisement? Would the information have to be provided if there was a 15p surcharge on each sale of petrol? I am not suggesting that people should have to provide unnecessary information in those circumstances. It is, however, a question that has been put to me. I do not know the answer. I put the question now to the Minister.
I offer my congratulations to the Director General of Fair Trading, who has produced some exellent literature as a guide to the regulations that we are debating and associated regulations. It is a splendid job. Looking through the publication "Advertisements and Quotations Regulations", I wonder whether it would be possible to produce, in a different legislative framework, the Director General's guidance as the regulations themselves. I am sure that such a move would appeal to many people who have to deal with the regulations from day to day. I wonder whether it would be possible to publish the guidance as a code of conduct, saying that those who advertise for credit must follow the spirit as well as the letter of the publication. There could be a de minimis rule and any mere technical breach of regulations that did not mislead would be overlooked. I feel that this would be a better approach, bearing in mind that six years have elapsed while we have progressed only about halfway through implementation of the 1974 Act.
§ 8.7 pm
§ Mr. Robin Squire (Hornchurch)
I speak as a consultant for Lombard North Central. I have worked for 12 years in the credit finance sphere. The hon. Mem- 1048 ber for Norwood (Mr. Fraser) made most of the points that I wished to put for. ward, but I should be grateful for the patience of the House in order to reiterate a few of them.
The original White Paper that preceded the Act—it was entitled "Reform of the Law on Consumer Credit"—specifically highlighted the possibility that there would be an argument for absolving such undertakings as building societies from the same requirements, and it met the position head-on by saying that they would need to conform with the same rules as those that would be required for finance houses.
There is considerable disappointment in the credit industry that these rules on advertisements have not been applied to building societies. The news that the exemption is to be extended to insurance companies and friendly societies does nothing to remove their concern. We have to ask whether the Government have any role in what would appear, at least on the surface, to be some form of discrimination. I am sure that my hon. Friend the Minister will confirm that no such discrimination is intended, but the fact that there is a built-in discrimination in relation to advertisements leads one to think that in this respect there are first and second-class citizens, and first and second-class lenders. Whatever their reputation, I assure my hon. Friend that the FHA and the banks are in the forefront and contain some household names whose financial probity cannot be doubted. They feel that they are being made to suffer when compared with building societies.
The hon. Member for Norwood already referred to the question of the total charge for credit, and that is a valid point. I support his comments. Surely, however, the moving spirit behind the Consumer Credit Act was the need to simplify matters for the would-be borrower, presumably because it was felt that he would wish to know the true rate of interest on whatever loan he was undertaking. Many hon. Members may doubt whether that is his concern, or whether the amount of payment is more important.
Whatever the answer, we seem to be facing the possibility that two loans made for an identical purpose, one from a 1049 building society or a friendly society, and the other from a bank or a finance house. will quote different interest rates—although the underlying rate will be the same—and that can only increase confusion and goes nowhere near providing so-called truth in lending.
These issues are important. I urge my hon. Friend to say whether the Government still have the matter under review and whether, should the confusion that I and one or two other hon. Members envisage come about, they will review these provisions and seek to eliminate these important anomalies.
§ Mr. Michael Neubert (Romford)
Because of the horrendous complexities of the Consumer Credit Act I do not intend to do more than make a simple point. I do not seek to widen the debate. I wish to refer to the apparent disparity of treatment between finance houses and banks on one hand and insurance societies, friendly societies and building societies on the other.
Originally it was thought that all would be treated equally in terms of mortgages and advertisements. First the building societies were exempted and now, under the order and regulations, insurance and friendly societies are to be made exempt. My attention has been drawn to the anomaly by one of the aggrieved parties—the Finance Houses Association. With the banks they are left at a disadvantage when making superficial comparisons between offers of mortgage facilities. The whole principle of fair competition rests on fair comparisons. Too often the consumer makes rather facile comparisons between what is available in the market and might come to an entirely wrong decision.
It is unfortunate that now the Government have felt it necessary to step in and require people offering credit to do so in highly exacting terms—in the context of mathematical formulas that command the skill of a senior wrangler. It is unfortunate that they should knowingly and apparently with deliberation introduce an incompatability of comparison. There might be a good reason for it but I cannot see it.
I hope that my hon. Friend can provide the answer. If there is to be "truth in 1050 lending" and if some bodies are to be exposed to rigorous requirements in advertising their credit facilities, it is unfair that there should be an inequality of entitlement when a mortgage is involved. After all, for most people a mortgage is the most important transaction in their lives.
§ The Under-Secretary of State for Trade (Mr. Reginald Eyre)
I have listened with great interest to the contributions in this short debate. On an appropriate occasion I should like to discuss the near-philosophical point made by the hon. Member for Norwood (Mr. Fraser) about how these complex requirements can be applied in society in a way which does not involve the full legalistic implications which necessarily follow such legislation.
We can all agree about the complexity of the Consumer Credit Act 1974. I sometimes wonder whether less comprehensive legislation would have been wiser. Perhaps it would not have got beyond square one. Perhaps the only realistic course was to adopt the Crowther committee recommendation to have a single enactment covering consumer credit and hire generally. However, I wonder whether we could develop an alternative system involving codes of practice.
Whatever options there might have been we cannot change history. We have the Act and considerable progress has been made in implementing it. I cannot give the hon. Member for Norwood precise details about the further implementation of the Act but I shall bear in mind what he has said about the outstanding requirements. Like the Act, the orders and regulations necessary to implement it are complex. It does not follow that the requirements with which traders must comply are in themselves necessarily complex. It is often a problem of picking out the provisions.
The hon. Member for Norwood offered his congratulations to the Director General of Fair Trading. I thank him and join him in congratulating the director and his office on the production of such excellent and helpful documents which will be of considerable assistance to people in understanding the requirements 1051 of the Act. They will help traders to pick out the provisions which apply to their specific businesses.
My right hon. Friend the Minister for Consumer Affairs recognises that the regulations are complex. She has made it clear that she will monitor the regulations and keep them under review. If there are real problems my right hon. Friend is always willing to examine them. I shall bear in mind what the hon. Member for Norwood said about the possibility of simplification.
The House will now expect me to deal with the instruments to which the prayers relate. Then I wish to refer briefly to the "truth in lending" package generally. I cannot agree that it would be right to annul statutory instruments No's 1359, 1360 and 1361. The Consumer Credit (Exempt Advertisements) (Amendment) Order—No. 1359—merely clarifies the exemptions in the original exempt advertisements order. There cannot be real controversy about the original order or the largely technical amendments in the amendment order.
The Consumer Credit (Advertisements) (Amendment) Regulations and the Consumer Credit (Quotations) (Amendment) Regulations have more meat, as became clear in the debate. The regulations broaden certain exemptions from the requirements of the advertisements and quotations regulations. The principal regulations do not apply in so far as an advertisement or a quotation relates to an agreement secured by a land mortgage and made by a building society or local authority. I noted that the hon. Member for Norwood raised that subject. I appreciate the interest expressed by my hon. Friends the Members for Hornchurch (Mr. Squire) and Romford (Mr. Neubert).
It was thought right to make this exemption in respect of building societies and local authorities because compliance with the normal requirements would have presented special problems for them. In some respects the problems are no different from those faced by other creditors, such as those mentioned by my hon. Friends and the hon. Member for Norwood. However, it was considered that it was necessary to take special aspects into account. It appeared that all local 1052 authority and building society offers could, willy-nilly, have been quotations having to comply with the quotations regulations. Yet they are not "quotations" in the rather special sense envisaged in section 52 of the Act, the purpose of which is to give consumers who are shopping around between credit facilities the right to obtain a written statement of the terms on which the trader is prepared to do business. The local authority and building society offers are not made, as the hon. Gentleman fairly said, in response to "shopping-around" inquiries. It proved impracticable to separate the latter from the former. My right hon. Friend took the view that, in the prevailing circumstances, the additional burden on local authorities and building societies was unjustified.
When the regulations had been published, it was drawn to the Department's attention that an anomaly had been created in that insurance companies' topping-up loans were often made in parallel with building society loans, and that the application of different rules to insurance company loans was anomalous. Very careful consideration was given to the extent to which exemption should be widened. It would have been possible to exempt from the requirements of the advertisements and quotations regulations all house purchase loans. This would have meant yet another dividing line and yet another complication. It was also apparent that changes had taken place in the house purchase loan market but it was not clear whether these were permanent or merely in consequence of the then shortage of building society loans.
I appreciate that what I shall say will not be in accordance with the wishes of my hon. Friends the Members for Horn-church and for Romford or in line with the views that they have expressed this evening. However, my right hon. Friend decided that the right course was to use the dividing line already existing in section 16 of the Act and the order under it to make the same exemption from the advertisements and quotations regulations as is made in relation to agreements. The principle underlying this distinction, which I ask hon. Members to consider, is that the exemptions may not apply to creditors who carry out normal consumer credit business, that is, are not specialists 1053 in house purchase loans. She recognised, however, that this was not an ideal solution—indeed, there was no ideal solution She therefore asked the Director General of Fair Trading to keep the exemptions under review and report in due course. I hope that my hon. Friends will feel that that gives them a satisfactory assurance in respect of the review.
I know and regret that some organisations see in the exemption an unjust discrimination between credit grantors of different types. We have some sympathy with their complaint, but my right hon. Friend thinks that to depart from the section 16 dividing line—at any rate without experience of how the exemptions work and without the Director General's report—would be a mistake.
I turn now to more general matters. The package of orders and regulations which came into operation on 6 October are an important step in implementing the "truth in lending" provisions of the Act in relation to the ways in which traders granting credit or supplying goods on hire seek business. In the past advertisements have often given an inadequate indication of the terms on which the trader is willing to do business. Sometimes little or no hard information was given, reliance being placed on such phrases as "HP terms available". Information was often given in terms making comparison between competing offers impracticable. This was particularly true of rates of charge which might be the flat rate—which is roughly half the true rate—or which might omit to take into account charges other than interest, which can make a great difference to the cost of the credit.
It was in order that consumers should be better informed that Parliament, in section 44 of the Consumer Credit Act 1974, imposed a requirement on the Secretary of State to make regulations as to the form and content of advertisements. That section goes on to say that the regulations must contain provisions with a view to ensuring that an advertisement conveys a fair and reasonably comprehensive indication of the nature of the credit or hire facilities offered and of their true cost to persons using them. This was a tall order and it is not surprising that the regulations which have emerged from over five years' work are complex. It was necessary to spell out 1054 in detail the requirements as to information to be disclosed to enable the consumer to make an informed choice. It was also necessary to make special provision to cover particular circumstances, for example showrooms, and media, particulary television. Much as everyone would have liked to have simple rules applying to all advertisements, that was not on. The division of advertisements into three categories—simple, intermediate and full—was likewise a recognition of the practicalities.
The hon. Member for Norwood raised three questions, the first with regard to building society advertisements. I have explained the situation about quotations and the special position of the building societies, and I can say only that I have noted the hon. Gentleman's point. His second question was of a practical nature, and it related the 15p charge made by petrol stations for accepting payment by means of credit cards.
The charge does not come within the total charge for credit because it is not within the scope of the term "transaction" as defined in regulation 1(2) of the total charge for credit regulations. The purchase of petrol, I am advised, is not a linked transaction within the meaning of section 19(1)(a). That means that the purchase is not made in compliance with the terms of the credit card agreement. I hope, therefore, that the hon. Gentleman will feel satisfied that there is no difficulty in that respect.
The hon. Gentleman's third point was not a question but was his very kind reference to the Director General of Fair Trading, for which I have already thanked him.
It was in order that consumers should be better informed that Parliament developed all these regulations in the wake of section 44. I wish to emphasise, however, that the regulations were drawn up only after very extensive consulation with trade and consumer bodies and that many changes were made to our earlier proposals. My right hon. Friend took great pains to try to avoid on the one hand imposing excessively onerous requirements on traders, and on the other leaving consumers with little or no more information than they have received in the past.
It was mentioned, and I understand that it is true, that the Office of Fair 1055 Trading and trading standards departments are receiving numerous inquiries. I am not surprised that queries are arising at this stage. They are inevitable with so important an innovation. Moreover, the inquiries themselves show that traders are taking the new requirements seriously. I have referred already to the helpfulness of the booklets that are available. There is also a recently released leaflet for consumers called "There's more to credit than just HP". I hope that those publications will ease the task of traders in implementing the regulations and help to ensure that consumers are properly informed.
In conclusion, I want to make it clear that my right hon. Friend sees truth in lending playing a significant role in achieving greater or fairer competition in the credit and hire area. In one sense it is already a highly competitive area. The variety of institutions and types of credit is very wide indeed, but unless people are able to make an informed appraisal of the different facilities, that variety alone will not ensure competition. It may merely bewilder the consumer, who may not be in a position to compare one facility with another. That is why comparable information is particularly important in the credit and hire area. Without such information, competition will not really work. One must recognise the regulations potential importance in stimulating competition. I think that traders whose terms are competitive should not look on them merely as a tiresome new regulations but should welcome the fact that their competitors will no longer be able to indulge with impunity in misleading or uninformative advertising.
My earlier remarks should not be taken to mean that we have set our face against any change in the regulations at any time. My right hon. Friend is sure, however, that the essential course is to give them a fair run to see how they work. I assure the House, my hon. Friends, and the hon. Member for Norwood—especially with regard to the point about finance houses—that my right hon. Friend and the Director General of Fair Trading, upon whom the Act imposes a statutory duty in that respect, will keep their working under review.
§ Motion, by leave, withdrawn.