HC Deb 17 January 1996 vol 269 cc813-20

  1. '() (1) The Secretary of State shall establish a Student Loans Appeals Panel ("the Panel") with the functions of investigating and adjudicating upon disputes between borrowers or intending borrowers (whether in respect of public or private sector student loans) and any person or body engaged in the making of such loans.
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  2. (2) The grounds of any dispute referred to the Panel under subsection (1) above may include—
    1. (a) the refusal of a student loan; and
    2. (b) the unreasonable disclosure to a third party of information relating to any applicant for a student loan held by any person or body engaged in the making of student loans under the Education (Student Loans) Act 1990.
  3. (3) The Panel shall consist of three persons appointed by the Secretary of State, at least one of whom shall have recent employment experience in the field of higher or further education.
  4. (4) Any party to a dispute referred to the Panel under subsection (1) above shall accede to any reasonable request to furnish the Panel with documents or information it requires in order to discharge its functions.'.—[M r. Byers.]

Brought up, and read the First time.

Mr. Byers

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker

With this, it will be convenient to discuss amendment No. 4, in schedule, page 3, line 40, leave out from `(c)' to end of line 42 and insert 'sub-paragraph (5) shall be omitted.'.

Mr. Byers

The new clause would establish a new student appeals panel. As a consequence, we would need to delete the provisions contained within the Education (Student Loans) Act 1990 for the establishment of the independent assessor.

In Committee, the Government refused to accept any amendments aimed at providing students in both the private and public sectors with a right to appeal to the independent assessor. We felt it appropriate that, when a student applies for a loan and is then denied that loan, there should be an appeal mechanism.

At present, a student who is denied a loan by the Student Loans Company or is unhappy about the process or operation of that company may appeal to the independent assessor. We have had our reservations about the way in which the independent assessor has operated over the years. The operation has been limited in its application, and there has been a reluctance to publicise its workings. As a result, little use has been made of the independent assessor appeal procedure.

Nevertheless, it appears that the Government have recognised the failings of the process. The independent assessor is now conducting his business in a slightly different way, and is prepared to publicise the service he offers. The result has been—this may be because of some difficulties being experienced by the Student Loans Company as well—an increase in the number of students taking their cases to the assessor.

As the Bill stands, those students who wish to take out a loan with the private sector will have no one to go to to consider any grievance they might have. If they take their loans out with the already established Student Loans Company, the independent assessor will be available. We have two different systems. In one instance, the student will have the independent assessor, but if a student takes out a loan with a private sector institution, which is the Government's preferred option, there will be no appeal mechanism.

By means of the new clause, we seek to establish a mechanism to allow students to make an appeal. We list in the new clause the circumstances in which we feel that such an appeal might be made if an individual student felt a grievance.

It is important to recognise the emphasis that the Government are placing on the significance of the private sector element of the student loans system. The Minister has made it clear that, over a period, the Government want to see the majority of students taking out loans from private sector institutions. That means that the number of loans taken out with the Student Loans Company will reduce. We feel that it is appropriate that, in those circumstances, the majority of students, who will be dealing with private sector institutions, should have an appeal mechanism available to them if they have a grievance about the way in which they have been treated.

The Government—especially the Minister—have argued that it would be inappropriate to interfere in the manner in which private sector institutions conduct their business. They say that commercial decisions are for private sector institutions to make, and that it would be wrong for the Government to intervene or interfere in the way we propose. We disagree with that. We feel that there is a strong case for placing restrictions on the operation of private sector institutions.

In Committee, the Minister argued: there is no obligation on financial institutions to give their reasons for offering or withholding loan or other facilities. To put students into a mysterious different category from the rest of society would be extremely dubious."—[Official Report, Standing Committee B, 19 December 1995; c. 108.] At another stage, in January, the Minister argued; People go to banks for loans to buy a home or a car, which may be an essential to their family, lifestyle or business. A student loan, albeit for something as important as education, is no more important than a loan for other essential purposes."—[Official Report, Standing Committee B, 9 January 1996; c. 134.] That argument is fundamentally flawed. First, on principle, we cannot regard the necessity to take out a student loan—a student is being pushed into that position—as being on a par with taking out a loan for a car or for an extension to a house. We feel that students can be placed in a separate category.

First, the student loans system gives an entitlement to a student loan that is provided by statute. Students are treated by the Government through statute as being in a different and exceptional category. That being so, different and exceptional provisions can be made available. That is what we seek to do through new clause 5—to introduce a student appeal system.

Secondly, students will differ from other borrowers because their right to borrow exists only in so far as they are students. In general terms, their entitlement to borrow and the terms and conditions under which loans are made available are prescribed by Government.

We are also aware that, when many students apply for a loan, it is likely to be the first time that they have made such an application. A 17-year-old who is about to leave sixth form to go into higher education may make his first loan application at that stage. He or she may apply to a private sector institution. That institution can turn down that young person, as the Bill stands, without giving any reason for so doing. It may reach its decision on the basis of incorrect information. The student will never know about that because he or she will not be given a reason, yet the rest of his or her life will be blighted.

We are all aware that, if we apply for credit of any description—for a mortgage, for example—one of the main questions on the application form will be, "Have you ever been denied a loan—yes or no?" That poor student will have to say yes. He or she will not know why the loan has been denied. It is just that, for some reason, the private sector institution determines that he or she is not suitable to receive a loan from it.

Given the significance to the individual of being denied a loan from the private sector institution at 17, if that is to happen, the individual should at least be given an explanation why. As things currently stand, that is not so.

In Committee, the Minister was conscious of the problems that could arise as a result of someone being denied a loan, and showed his usual concern about these issues. He was very clear that there was really no need to worry, because, if a student was denied a loan by the private sector institution, the banking ombudsman would come galloping over the horizon to the student's rescue. The Minister made that clear in answer to a question from my hon. Friend the Member for Warrington, South (Mr. Hall), who asked where a student could take a grievance about being refused a private sector loan.

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The Minister replied: He would go exactly where students go to at the moment—to the banking ombudsman".—[Official Report, Standing Committee B, 9 January 1996; c. 135.] Perhaps the Minister should have referred to the terms of reference of the banking ombudsman before making that comment. I have had the opportunity to do so, and it is clear that the banking ombudsman would have no status in considering a student's application that has been rejected by a private sector institution.

The limits on the ombudsman's powers are clearly stated: The Ombudsman shall have power to consider a complaint made to him except: — (a) to the extent that the complaint relates to a Bank's commercial judgment in decisions about lending or security". I am afraid that the Minister got it totally wrong in Standing Committee. The banking ombudsman has no part to play. If a student is denied a loan by a private sector institution, no one can intervene on the student's behalf. That is why new clause 5 is so important. The Minister was mistaken in Committee. He thought that the student had the right to raise the matter with the ombudsman. That is not the case. We need something in place that will allow the student to raise the matter so that further consideration can be given. New clause 5 puts such a mechanism in place.

In the light of those facts, I hope that the Minister will recognise, as he did in Committee, that there should be an avenue to consider these matters, because of the importance to the individual of having an application refused. I hope also that he will consider sympathetically the need for an appeals panel along the lines outlined in new clause 5.

Mrs. Fyfe

I support the remarks of my hon. Friend the Member for Wallsend (Mr. Byers), particularly about subsection (2)(a).

I appeal to the Minister once again to consider the refusal of a student loan. My hon. Friend pointed out that, when a student's loan application is refused, it could be as a result of wrong information, and that could affect him or her for a lifetime.

In my constituency, an adult came to me because he could not understand why for years he was refused credit. In the end, it turned out that he had a common surname, and that someone else with the same surname and forename lived in a different tenement flat but the same tenement stair. That is a common problem in Scotland, as I hope the Minister will recognise, where so many tenement dwellings exist.

Wrong information could dog a person for years. It could, of course, be correct information, but perhaps the student comes from an area where bad debts are pretty rife, and far more common than the norm. In that case, such a decision could stay with the student for life, no matter how careful that individual was about repaying debts, and no matter how successful he or she turned out to be in a subsequent career after graduation.

The National Union of Students agreed with us, not surprisingly, that there is hardly any justice in an institution refusing to give a student information on why he or she has been refused a loan, yet at the same time being willing to disclose to third parties information about the student's financial situation, and whether to give a grant or loan. The Minister tabled an amendment to the Bill to protect students and graduates from unwanted mail shots that might result from that disclosure. Unwanted mail shots are the least of a person's worries; they can easily be thrown in the bin.

A student could be refused for unfair and inadequate reasons and would never know why, yet other financial institutions are allowed to have that information. There is no justice in that, and I hope that, at this eleventh hour, the Minister will change his mind.

Mr. Forth

Whatever happened to new Labour? I thought that we were told by the leader of the Labour party that this was the era of new Labour and stakeholders and all those exciting new visionary concepts. I thought that new Labour was at ease with capital and business and that it would be friendly with the City. Yet I think that the truth is rather more unpalatable. The reality is that Opposition Members either do not understand the way in which business and the commercial sectors operate, or—I suspect—are instinctively hostile to the concept of private business and what the private sector does. That surfaced in Committee and it has surfaced again.

As the hon. Member for Wallsend (Mr. Byers) pointed out, where the Student Loans Company currently operates, and where it will operate in future, there is an independent assessor to whom students can go if they are unhappy with the way in which the company has dealt with them. The hon. Gentleman knows, although he did not give the figure, that, in the year to July 1995, such was the extent of rife dissatisfaction with the Student Loans Company that the huge number of students who approached the assessor was five. Only five students went to the assessor and complained, one way or another, that they were not satisfied with what the Student Loans Company had done for them. I shall leave hon. Members to make their own judgment about the Student Loans Company on the basis of that information.

Opposition Members argue that it is necessary to have an independent assessor mechanism to protect individuals against a public sector monopoly provider, which is what the Student Loans Company hitherto has been, but then they argue that it is necessary to have the same mechanism to deal with private sector providers or lenders. That is not so for a whole number of reasons, not least because students will continue to have a choice not only on whether they deal with the private sector or the Student Loans Company but on which private sector provider to use. We are talking about a competitive environment where the student—the customer—has choice, as opposed to the public sector. Until the provisions of the Bill become effective, the student has no choice of where to go for a loan. There is a real difference between the private and the public sectors.

Mr. Byers

At the moment, the Student Loans Company is required to make available a loan to a student who applies for one. It has no choice in the matter. The private sector will be able to choose the students to whom it wishes to lend. It is the refusal of a loan application by a private sector institution that causes Opposition Members concern, because of the future implications of such a refusal. That is why We believe that an appeal mechanism is necessary.

Will the Minister address that issue and recognise that we cannot compare the necessities of the assessor for the Student Loans Company with that of a newly established private sector institution that is involved?

Mr. Forth

We must inevitably compare them, as students will. If the hon. Gentleman believes that students will be blighted by a fear of dealing with banks, in his scheme of things no student would approach a private lender, fearing the humiliation of being rejected. I do not think that students hesitate to ask banks for credit cards, loans or overdrafts. It is a matter for them, but they do it, apparently with maturity and confidence. Some may be turned down, but I doubt that their lives are blighted by that. The hon. Gentleman is making far too much of the issue.

The hon. Gentleman's point does, however, lead me to a worry about the new clause that is fundamental to my objection to what the hon. Gentleman and his hon. Friends suggest. New clause 5 asks for a student loans appeals panel

with the functions of investigating and adjudicating upon disputes between borrowers or intending borrowers…and any person…engaged in the making of such loans. I can interpret that, and the thrust of what Opposition Members have said, only as meaning that the body concerned would have the power to oblige a private lender to lend to an individual. That is a new and disturbing development in the thinking of Opposition Members: if they are suggesting that a statutory body should have power to oblige a private concern—a bank or building society, for instance—to lend to an individual, we are in new and dangerous territory. If the new clause does not mean that, I do not think that it means anything; so, one way or another, that is what it must mean. If all that the panel will say is, "Having looked into the matter, we rather regret that you did not lend that person any money," I am not sure what its establishment will achieve.

Mr. Byers

The Minister says that we are in "new and dangerous territory", but nothing could be further from the truth. We already have industrial tribunals, which do not require an employer to take an employee back if he does not wish to: we have a system of adjudication that does not require a party to a dispute to do something that he may not want to do. That system works reasonably well in industrial tribunals, and we believe that it would also work well in the context of student loans.

Mr. Forth

In that case, I have doubts about the point or effectiveness of such a panel. Would it make financial awards? A tribunal can do that. Presumably, it could not undo the fact that a bank had turned down an applicant for a loan, so the blight that worries the hon. Gentleman would still exist. Disappointed students—with a blot on their record that will be with them for life—would, we now learn, have only the satisfaction of the fine that the panel would impose on the lender for having wrongly rejected the application.

The more we discuss the proposal, and the more detail I elicit from Opposition Members, the more absurd it becomes. I am suggesting that students should be able to choose between a number of private lenders and the Student Loans Company. There would still be an independent assessor to deal with the Student Loans Company, and the existing mechanisms of competition, the framework of law and all the other provisions that protect every citizen—including students—in regard to financial services would apply.

I believe that even young students are capable of learning how to deal with the various institutions, and possess the maturity and confidence to do so. I do not think it right to think of students as a special group that needs to be patronised, defended and protected at every turn, even when borrowing is involved.

Mr. Pickthall

In Committee, opposing our suggestions about income-contingent repayment, the Minister stressed that one of the main reasons for his opposition was the danger presented to confidentiality. Confidentiality was clearly important to him in that context; why is it irrelevant now?

Mr. Forth

I must ask the hon. Gentleman to explain himself. He has lost me.

Mr. Pickthall

I refer to the confidentiality that the panel would try to secure for a student whose application had been refused. In Committee, the Minister said that the need for confidentiality was his main reason for objecting to income-contingent repayments based on national insurance. Surely there is an inconsistency here.

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Mr. Forth

I did not say that that was the main reason for my objection; it was on a long list of powerful arguments that I advanced to explain why I was not enamoured of the idea of linking income contingency with national insurance contributions or income tax payments. As for confidentiality, I said then, and will say again, that a satisfactory number of arrangements exist to protect confidentiality in the context of financial services. That is the case now, and I expect it to continue to be so in the future. I was not persuaded then, and am not persuaded now, that any additional measures will be required. In any event, I do not accept that the measures proposed in the new clause and amendment are necessary, or would be particularly beneficial.

We are talking about students—young people, admittedly, but young people with intelligence and ability—learning to deal with different financial institutions for many different purposes. As I have said, they do that more than adequately now, and I am confident that they will continue to do so. I cannot agree with Opposition Members that we should single out students as a group, assuming that they are incompetent and that private lenders will spend all their time doing them down and gratuitously turning down their loan applications, with all the implications that that would have for the lenders' reputation and their competitive position.

Opposition Members have presented a false analysis. The new clause is unnecessary, and would damage the relationship between the Government and the private sector, a relationship about which those Opposition Members seem less concerned than their leader wishes to persuade us. I hope that the House will reject the new clause and the amendment.

Mr. Byers

The Minister suggests that it would be improper to single out students, but the Bill does precisely that: students are to be treated differently from other sections of the community. We feel that, when public money is involved—as it will be in this instance, because a subsidy from the taxpayer will be made available to the private sector—there is nothing wrong with attaching terms and conditions, especially when that is in the public interest. The establishment of a student loans appeals panel would allow proper consideration to be given to wrong decisions or the provision of erroneous information to the private sector institution involved, resulting in the denial of a loan.

As the Bill stands, a student cannot raise questions or appeal to any body about the refusal of a loan. Students can never know why their loans have been refused. The information involved may well be incorrect, but the student will be unaware of that. An appeals system would allow the information to be made available to an independent body, and would enable a student to find out why the loan was refused.

In Committee, the Minister clearly believed that there was an avenue of appeal to the banking ombudsman. That was his powerful argument. It is now clear that, under his terms of reference, the banking ombudsman cannot deal with such matters. The Minister should accept that he was incorrect in Committee, although he recognised the need for a body that could look at the matter. Given that the banking ombudsman cannot do that, we need a body that can consider those matters. We have advanced some powerful arguments for new clause 5, and we regret the Minister's refusal to accept it. However, the matter may be raised in another place and it is inappropriate to press the new clause to a Division. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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