§ '.—(1) In this section "residential property loan" means any loan which—
- (a) is secured on land in the United Kingdom; and
- (b) is made to an individual in respect of the acquisition of land which is for his residential use or the residential use of a dependant of his.
§ (2) No person ("the lender") shall enter into an agreement with another ("the borrower") for the provision to the borrower by the lender of a residential property loan together with one or more controlled services, unless the conditions mentioned in subsection (3) are complied with before the agreement is entered into.
§ (3) The conditions are that the lender—
- (a) informs the borrower by notice that the residential property loan, and each controlled service to which the proposed agreement relates, are separate services;
- (b) informs the borrower by notice whether the terms and conditions of the proposed residential property loan will, if the loan is made in accordance with the proposed agreement, be capable of subsequently being varied by the lender;
- (c) provides the borrower with a statement of—
- (i) the price which will be payable by the borrower for each of the controlled services if they are all provided in accordance with the terms of the proposed agreement; and
- (ii) the extent to which (if at all) the terms and conditions of the proposed residential property loan would differ if it were to be provided by the lender without the controlled services to which the proposed agreement relates being provided by the lender; and
- (d) informs the borrower by notice that, if the borrower declines to take from the lender any of the controlled services to which the proposed agreement relates, the lender will not on that account refuse to provide the proposed loan.
§ (4) Where a person advertises, or in any other manner promotes—
- (a) the provision of any controlled services which, in the course of his business, he offers to provide in conjunction with the making by him of residential property loans; or
- (b) the making by him, in the course of his business, of any arrangements for the provision of any controlled services in conjunction with the making by him or any other person of residential property loans,
§ Brought up, and read the First time.
§ Mr. Deputy Speaker (Mr. Harold Walker)
With this it will be convenient to take Government new clause 31—
§ Tying-in arrangements: supplemental provisions.
- Government new clause 32—Tying-in: offences.
- Government new clause 33—Tying-in: enforcement.
- Government amendment No. 177.
§ Amendment No. 186, in clause 88, page 70, line 16, leave out subsections (2) to (10) and insert—552
§ '(2) The Lord Chancellor may by regulation, and in the absence of any code or codes of practice acceptable to him dealing adequately with the matters specified in subparagraphs (a) and (b) below, make such provision as he considers expedient with a view to securing that—
- (a) no borrower (which for the purposes of this section shall include a prospecitve borrower) shall be unfairly or unreasonably obliged to take, or agree to take, a residential property loan subject to a condition that any other services required by the borrower are to be provided by the lender or any other person, or any such other services subject to a condition that a residential property loan is to be made by a particular lender, and
- (b) if any such other services as aforesaid are proposed to be provided, the lender shall offer to provide to the borrower details in writing of any consideration payable.'.
§ Amendment No. 187, in clause 100, page 79, line 2, after '50', insert '88(2)'.
§ Government amendment No. 180.
§ The Solicitor-General
These new clauses and amendments deal with the important topic, which we discussed in detail in Committee, of tying in and the perceived abuse, as it can be, of the mortgage lender using his potentially coercive power to the disadvantage of the borrower. I explained in our debates in Committee that, when dealing with this problem, our touchstone must be openness, so that a borrower can see clearly how much a loan will cost him or her, whether that loan is provided alone or in conjunction with other services.
Clause 81 became clause 88 and new clauses 30 to 33, together with the amendments, create a slightly longer but a clear and coherent structure to deal with this potential abuse. I shall not outline them in great depth, but there are one or two points of principle to which I should draw attention.
New clause 30 prohibits people who make residential property loans from doing so as part of a package with other services unless certain conditions are first complied with. The lender must inform the borrower, by notice, in a form prescribed by the Secretary of State, that the loan and other services are separate services. He must inform the borrower whether the terms and conditions of the loan are variable and, if the borrower declines to take other services in the package, as many borrowers will, that the lender will not refuse to provide the loan simply for that reason.
The lender must provide the borrower with a statement of the price payable for each of the other services in the package, and the extent to which the terms and conditions of the loan would differ if it were made without the other services in the package. Differential pricing is to be permitted and may be justifiable and desirable, but it must be clear to the lender what he is buying and what he is paying for, whether he takes the package as a whole or just an individual service.
New clause 31 provides for the Secretary of State to prescribe which of the services the inclusion of which in a package with a loan cause the previous clause to apply. They may include insurance and other financial services, valuation and surveying services, conveyancing services and removal services. The clause also provides for connected agreements.
New clause 32 provides that it is an offence to fail to comply with the requirements of new clause 30 or refuse to 553 grant a loan, having complied with the conditions of subsection (3) where the proposed borrower declines other services in the package.
New clause 33 provides for enforcement powers, which are to be carried out by the local trading standards officers, technically described as local weights and measures authorities and by the Director General of Fair Trading, except in Scotland, where prosecuting will, as always, be in the hands of the procurator fiscal.
There we have a full statutory framework to cover this important matter of tying in, which, as I said, we dealt with in considerable detail in Committee. I commend that new framework and the new clauses to the House.
§ Mr. Alex Carlile
I apologise for taking up just a few minutes on the important issue of tying in. In Committee, I said that I had had the assistance of the TSB Group plc on some issues arising in this context, and I should add that I have had the same assistance again for the purposes of this Report stage.
I am grateful to the Solicitor-General for the rethink that has taken place. We are often criticised in the House for having rather political and unconstructive Committee stages, but, within the bounds of political practicability, the Committee stage of this Bill has been a credit to the House and many useful changes have been made.
The principle which concerned those of us who spoke on the matter in Committee has been accepted and there is much thanks for that. The tying-in provision under clause 88 has been radically redrafted and now seems clearly to permit differential pricing of financial service packages.
In a sense, the financial services sector is, like the legal profession, facing regulatory powers and uncertainty about what will happen when the regulations are made. I am sure that the Solicitor-General will give an assurance that the regulations will be subject to a proper consultation procedure with all interested parties.
It is clear that the redrafted clauses have moved the previous clause 88 provision from being one under which tying in should be prohibited to one under which a mortgage lender may provide controlled services only after it has been through the bureaucratic hoop set out in new clause 30.
The financial services sector is concerned that those hoops, as I have called them, might impose unnecessary bureaucratic burdens on firms which would be wholly unjustified by the nature and incidence of the perceived malpractice that the Government are seeking to outlaw. That could have a considerable impact on costs, and any significant impact on costs is not absorbed but passed on to the consumer. We are concerned here to achieve value for money for the consumer and a fair deal for the consumer and the financial services institution providing the service.
I want to make some, I hope, constructive suggestions to reduce the administrative burdens associated with the proposals. It seems odd that, by reason of new clause 31(6)(a), another member of the same group of companies can be liable to be prosecuted for an offence committed by the lender under new clause 30, subsections (2) and (4), because the two companies are to be treated as one.
For example, under the provisions as drafted, if a customer applied to a bank for a loan and said that he would make his own arrangements for other services, such as insurance, the bank would not apparently have to 554 satisfy the conditions under new clause 30(3). However, if the customer later told the bank that he had decided to take a controlled service from a sister company, the requirements would bite. That they should bite in those circumstances seems questionable, when the lender had had no part in arranging the supply of the controlled service to the customer, nor stood to receive a direct benefit from the service being purchased.
It would therefore be helpful if the Government could look again at new clause 30 to see whether it could be amended so that the conditions in subsection (3) applied only in circumstances where the provision of controlled services had been arranged by the lender. After all, it would be self-evident to a borrower that the services he was buying were separate services.
If it were possible to amend the law in that way, it would be feasible to dispense with the provision under new clause 31(6) while maintaining the object of the tying-in provision. That would remove the unfair liability for prosecution which might be faced by suppliers of controlled services because they happened to be related to a lending company.
In addition, new clause 31(9) defines the words "notice" and "statement". It would be a great help to financial institutions if the Government could assure them that it would be possible to combine all the information requirements under new clause 30 in just one document—which could, if it suited the lender, be the agreement itself.
It is not entirely clear why the requirement that the lender should inform the borrower whether the terms and conditions of the loan are capable of subsequently being varied is regarded as relevant in the context of tying in. Typically, some terms of the residential property loan, most obviously the interest rate applicable, will be variable, and that will apply whether or not the loan is part of the package. It is therefore an important issue upon which the institutions would welcome assistance.
New clause 31 does not appear to recognise circumstances where the lender prices a package in terms of an aggregation of individual prices for the individual controlled services, but as one or more package prices. Presumably the Government are prepared to allow package pricing, as it may well achieve in most cases the aims of value for money and a fair deal for the consumer. It is therefore an important point.
Finally, with regard to the regulations governing advertising and promotion, which it is envisaged that the Secretary of State may make, one hopes that it can be assumed that those regulations will be entirely consistent with other similar regulations. In particular, I have in mind those relating to the advertising of mortgage loans under the Consumer Credit (Advertisements) Regulations 1989, which cover all personal loans to be secured on land, regardless of whether they are to be under regulated agreements, and with advertising rules for endowment. insurance under the Financial Services Act 1986.
All that sounds, and is, a little complicated, but they are issues of importance which, if not sorted out properly, could well adversely affect consumers when they walk into the bank or building society full of nervousness and trepidation to try to obtain what may well be the most important financial transaction of their lives. Therefore, clarification and clarity are of the utmost importance.
§ Mr. Gwilym Jones (Cardiff, North)
I have had the benefit of advice from the Association of British Insurers, and I shall voice some of the points that it has made to me. As disclosed in the Register of Members' Interests, I am a director of Bowring Wales Ltd. and an insurance broker. Therefore, I am interested in the subject.
The Association of British Insurers feels that the new clauses are a great improvement, in terms of clarity, on those that we considered in Committee. It is particularly pleased that many of the points that it made have been taken into account and are to be found in the new clauses. In particular, a question that I raised about section 16 of the Insurance Companies Act 1982 seems to have been resolved by the new clauses.
However, insurers remain concerned that they will be obliged to offer a loan without the other services where they had been seeking to offer that loan as part of a package. After all, insurance remains the main business of insurance companies, not the offering of loans. As the market develops, insurance companies may feel that they cannot continue to offer loans, and they may withdraw from the market. That would be a disadvantage because it would reduce the market available to consumers.
The Secretary of State has wide powers to go beyond the new clauses by amplification in orders and regulations. I note that he is required to consult the Director General of Fair Trading and others. It is therefore appropriate to seek an assurance that, in such an event, the Secretary of State would consult fully with the insurance industry and think carefully before proceeding with any orders or regulations.
The provisions of new clause 33 will be enforced by local weights and measures authorities and by the Director General of Fair Trading. That must mean, of necessity, that a range of local weights and measures authorities will be involved. Consequently, there must be the possibility of a variation in response. There could be a lack of uniform approach towards enforcement. I look for an assurance from my right hon. and learned Friend the Solicitor-General that he expects uniformity in the enforcement of the new provisions. It would be helpful if he could enlighten me on how he envisages that being achieved.
§ Sir Hugh Rossi
The new clauses are a useful package of protection for the consumer, and should be welcomed. One matter that concerns me is how to bring the package to the attention of the consumer. He must understand that they are there for his protection and that they prevent people offering to lend money doing certain things. Will there be a publicity campaign—a house buyer's charter—to draw attention to the measures? They are there to protect the consumer when he is buying a house, taking on an enormous mortgage burden and dealing with people presenting a package.
Another concern is that, although the conditions under new clause 30 apply to a lender, there is no reference to, for example, a mortgage broker, who can put together a package on the basis of commission. Is he also obliged to disclose his commission and to account to the buyer for that commission? A solicitor or a legal practitioner must do that when putting together a package for the client. Only when there is full disclosure can there be full protection. As I understand it, there is nothing in the new clauses to cover that.
§ Mr. Fraser
The hon. Member for Hornsey and Wood Green (Sir H. Rossi) said almost everything that I wished to say, so I shall not repeat it. Perhaps the way to deal with brokers would be for the Solicitor-General to say that the Director General of Fair Trading, in exercising his jurisdiction as the supervisor of consumer credit, would perhaps show the yellow card to any broker who had a consumer credit licence and was encouraging people to enter into package arrangements that would be illegal if offered by a lender but not expressly illegal if put together by a broker.
I agree wholeheartedly with what the hon. Member for Hornsey and Wood Green said about giving publicity to the right to choose, which a borrower should have so that he is not being given something that he wants tied in with something that he does not want and does not need.
§ The Solicitor-General
Our debates on this matter have been highly constructive, and I am grateful to the hon. and learned Member for Montgomery (Mr. Carlile) for his kind remarks. We are trying to deal with what I believe has been, and can be, a real abuse of power. I am sure that the way to deal with it is by complete openness by the lender, with the borrower knowing what every ingredient of the package costs—above all, what the loan will cost, and then what the other services in connection with the loan will cost.
I shall deal first with the question of consultation. New clause 31(12) makes an express statutory requirement for consultation by the Lord Chancellor, first with the Director General of Fair Trading and then with all others with whom he sees fit to consult. That is a broad power, but I am confident that it is my right hon. and learned Friend's intention to consult widely. The way to achieve good legislation in this area is to put it to the industry and let it understand what we have in mind. It can then point out any inconsistencies and pitfalls, as it has done constuctively in the development of this new clause.
I am grateful to the Trustee Savings bank and the hon. and learned Gentleman for giving me an early sight of their constructive comments. I do not believe that they and other commentators need be worried about the provision becoming unnecessarily bureaucratic. I think that that also answers the point raised by my hon. Friend the Member for Hornsey and Wood Green (Sir H. Rossi), who wanted to know how the borrower would get to know about it.
The structure of the new clauses means that the lender must notify the borrower by notice, in a form prescribed by the Secretary of State, of his rights and of the requirements in relation to the separate services and, of course, the separate pricing and the power to take some or all of the services on offer. That means that a borrower gets the forms in a way that immediately shows his rights and opportunities. There is no reason why that should not be backed up with publicity if that appears to be sensible. It is not something the statute provides, or needs to provide.
On advertising, what is required must be consistent with the requirements of the new clauses as a whole. I am grateful to my hon. Friend the Member for Cardiff, North (Mr. Jones) for his kind remarks on behalf of the Association of British Insurers. I participated in some of the consultations with that body, among others, and the probing and constructive way in which it sought to ensure that the system should work in practice and should meet its needs has helped us to frame the new clauses in a way that I believe need cause it no anxiety.
557 I can think of no reason why insurance companies should be put off providing loans under the new framework. After all, it must be recognised that the provision of property loans is a sensible long-term investment for insurance companies. All that we are seeking is to ensure that the borrower, whose financial strength is of great importance to the insurance company, knows exactly what he is buying and is not being forced to buy something that he does not want at a price that he would not choose to pay if he were free to choose.
There are two answers to the question of enforcement. First, on the issue of uniformity, the whole matter will be supervised by the Director General of Fair Trading and he will keep an overview. Secondly, I know from personal professional experience a good deal about the work of the weights and measures and trading standards authorities. There was a time when I could claim some expertise in the Trade Descriptions Act 1968. Trading standards officers are served by journals, and it is amazing how quickly the result of any case or any problem particular to that area of enforcement is raised, discussed and commented upon in those journals. Consequently, one finds among those authorities a high degree of uniformity and a desire among enforcement officers to perform their duties in a sensible and uniform way.
This helpful debate has teased out a number of useful points, and we shall try to learn constructively from them in putting into operation the framework that we now have in sensible statutory form. I commend the new clause to the House.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.