§ 12.17 p.m.
§ Lord Lyell rose to move, That the draft order laid before the House on 3rd November be approved.
§ The noble Lord said: My Lords, I beg to move the draft order standing in my name on the Order Paper. The purpose of this order is to increase certain monetary limits in the Consumer Credit Act 1974. These limits determine the coverage of the Act and hence the agreements which will benefit from protection under the Act. As your Lordships will be aware, the present limits were set in 1974 and they have not been changed since then. They have not required revision before now because they are of limited significance while much of the Act remains unimplemented. Since 1974, the fall in the value of money has meant that the protection intended by Parliament has been eroded, and the Government 410 consider it right to restore the limits to something like their real, original values now that a commencement order has been made to bring the major remaining provisions of the Act into force from 19th May 1985. The changes proposed in the order before us this morning generally reflect the movement in money values since 1974.
§ With your Lordships' forbearance, I will outline briefly what the limits in the order are all about. The most significant limits are the upper limits for consumer credit and hire agreements in Sections 8 and 15 of the Act. At all times when I am speaking of "the Act", I mean this rather complicated and very interesting Consumer Credit Act 1974. Beyond these cut-off points, credit and hire agreements are not within the scope of the Act. The limiting factors are, for credit agreements, the amount of credit which is provided; and, for hire agreements, the total of the hire payments. The limits are currently £5,000 but as from 20th May 1985 the limits will be £15,000. The same change is proposed for the limit in Section 43, which is the normal cut-off point for compliance with advertisements regulations. Advertisements for agreements above that limit have to comply only if the agreement is to be secured on land.
§ At the other end of the scale is the so-called "small agreements" limit in Section 17, under which a limited range of small agreements is excluded from the documentation, cancellation and certain other provisions of the Act. The most important exclusion is for low-value purchases of goods on credit. This limit is being raised from £30 to £50 from 1st January 1984. This is proportionately less than some of the other increases because this is an area where we have found that there is real public concern. But I would stress that this limit does not apply to money lending: all money lending, however small, is covered by the Act.
§ The other limits in the order relate to Section 75, subsection (3) of which contains upper and lower limits which determine when a creditor is jointly and severally liable with a supplier of goods and services for misrepresentation or breach of contract by the suppliers. At present, joint and several liability can apply in the case of any single item of goods and services costing over £30 and not more than £10,000. From 1st January 1984 the lower limit will go up to £100 and from 20th May 1985 the upper limit will be £30,000.
§ As I have said, some of the increases will take effect on 1st January 1984, while others will not take effect until 20th May 1985. The later date is necessary for some of the increases in order to ensure that some of the retrospective provisions of the Act will not bite on agreements for more than £5,000 which are made before the Act is fully in force. For example, it would be inequitable if the statutory right to rebate were to affect an agreement for £12,000 of credit made some time in the late 'seventies and settled early in 1986. But that would be the consequence of changing the upper cut-off point for the Act before or on the same day as the right to a statutory rebate becomes law. There is no such problem with the small agreements limit and lower limit on joint and several liability: the order therefore increases these limits on 1st January 1984.411
§ The limits covered by this order are the most important monetary limits in the Consumer Credit Act. I should add that the Act contains various other monetary limits and amounts, which my right honourable friend the Secretary of State for Trade and Industry is similarly increasing by a separate order which does not require parliamentary approval.
§ Finally, I am sure your Lordships will wish to know that the Standing Committee in another place debated this order on Wednesday, 30th November (as a Scot, may I say "St. Andrew's Day") but the committee did not draw special attention to the order. With that brief explanation. I beg to move that this draft order be approved.
§ Moved, That the draft order laid before the House on 3rd November be approved.—(Lord Lyell.)
§ Lord McIntosh of Haringey
My Lords, I think it would be fair to say that we on this side of the House have the converse reaction to this order as compared with our reaction to the orders we have just been debating on social security benefits, where my noble friends were less than welcoming of the implications for individual taxation and Government funding for those regulations. In this case, as we understand it, the purpose of the order is to restore the original intentions of the Consumer Credit Act 1974. To that extent, I think we will all welcome the upper limits that are now being revised in this way. We accept that the Government are right to do that, and that in general the upper limits follow the original intentions of the Act.
There are a number of questions which arise from this, and perhaps the noble Lord would be good enough to enlighten me about them. I understand it is the case that the Government originally expected the number of applications for consumer credit licences to drop off after the first burst in 1974, and that, because of the continuing recession, this has not been the case. Can the Minister tell us whether he expects any further rush of applications for consumer credit licences as a result of the changes in these upper limits?
Can he also tell us whether the Government are satisfied that we have, through the Office of Fair Trading and through the trading standards offices, adequate regulatory and enforcement capability for the additional cases which are liable to come before the enforcement authorities? It would also be very helpful if the Government could tell us what publicity is planned for these changes. Clearly, regulations of this kind have no benefit for the general public unless the general public actually knows about them. On that matter, too, I would be grateful for some further guidance; but, in general, I am bound to say that there is no opposition here, either to the intention or to the detail of this order.
§ Lord Drumalbyn
My Lords, may I express gratification that the noble Lord, Lord McIntosh, is in consonance with this order, if that is the right expression. I personally am; but I should like to ask one or two questions. First, may I congratulate my noble friend on the clarity of what he has said. This is a very complicated subject, and I hope I do not seem in any way to be diminishing my appreciation of the 412 intelligence of your Lordships as a whole when I say that I do not suppose that a great many of your Lordships will have completely understood what has been said today. But a very large number of people will read very carefully what has been said today, and I entirely agree with the noble Lord, Lord McIntosh, in asking my noble friend what publicity will be given to this. I suppose there will be the normal statement to the press, and it is likely to be picked up; but will any special publicity be given, apart from that?
It seems to me there are really two aspects to this order. The first is the general one covered in Part II, which covers what one might describe as the average requirements of consumers, the upper limit representing the limit beyond which people are regarded as being able to look after themselves. This is the general coverage, and in this case the increases in the limits roughly reflect the changes in the value of money. They are all alike, in the sense that in each case the upper limits are tripled. Perhaps I need not say anything about that because it is pretty plain sailing. But when we come to Part I of the order we are dealing with a different range of problems altogether. These are, in the main, dealing with the limits so far as the poorer sections of the community are concerned, and for that reason the protection required is greater. It so happens that the increases in the limits in this case are not simply mathematical formulae. In the case of these small debts, they are increased from £30 to £50.
In the case of the Section 75 coverage, which deals with what I might call the three-cornered transactions between the lender, the customer and the supplier, where the customer is given protection against both the lender and the supplier, a different formula is used—if it is a formula at all—and there is an increase from £30 to £100. This is to protect the customer from misrepresentations made by the supplier, or from a breach of contract by the supplier, and it enables the customer to have recourse against both the supplier and the lender, which in many cases is a finance house.
I think it could be argued, and indeed it is argued, that it would have been better to leave the small agreements out of this altogether and to leave the figure at £30. The reason for that is that the more unemployment there is, the more members of the public get into financial straits and need to have recourse to loans, and keeping the limit at £30 would be a considerable help to the borrower. Perhaps the word "borrower" is wrong, because I mean the person who receives credit.
Can my noble friend say whether this was considered at the time? It would have been helpful to leave the limit at £30 and there does not seem to be any essential reason for increasing it. On the other hand, if you increase it, it might be thought desirable to keep the same proportionate relativities throughout the order. But, as I said, I do not think that applies; and, indeed, it is quite the contrary. I think that the figure should have been kept at the lower limit of £30 in order to secure greater protection for consumers who need it more in existing circumstances.
I do not think I need go further than that, except to ask my noble friend why the limit was raised by more than the proportionate amount in the Section 75 transactions. Is there any particular reason for this, 413 and is it likely that in the future when the limits have to be raised they will be raised by different amounts in different cases? I hope that my noble friend will be able to answer those two points.
§ Lord Kilmarnock
My Lords, we on these Benches would also like to thank the noble Lord, Lord Lyell, for explaining this order. I have only two questions to put to him. First, as the noble Lord, Lord Drumalbyn, mentioned, the upper limit has been tripled and I think I am right in saying that it is considerably more than the movement of prices since 1974. I wonder whether there is any particular reason for that. Secondly—and I have a slight concern about this—it is obviously correct to provide further protection for transactions between £5.000 and £15,000, but will the Government bear in mind that it was recently reported that the savings ratio has dropped to, I think, 8 per cent. from about 14 per cent. only a couple of years ago? If you are going in for the further encouragement of consumption on credit, this may well further stimulate that downward movement of the savings ratio. As the savings ratio is very important in relation to general investment in the economy, I should like an assurance from the noble Lord that the Government are keeping a strict eye on this.
§ 12.35 p.m.
§ Lord Lyell
My Lords, it is a pleasure to have encomiums and thanks from all round your Lordships' House and, in the spirit of the time of the year, I should like to return our compliments and thanks to all your Lordships who have listened to, or spoken on, this order this morning. First, I should like to thank the noble Lord, Lord McIntosh, for his welcome and I should also like to congratulate him and all your Lordships who have spoken on the detailed study, not just of the order, but also of the Act. The noble Lord asked me a number of questions. He spoke, first, about licences. I hope I can assure him that the raising of the limits is, we believe, unlikely to change greatly the number of firms who will require licences. We hope that the situation will remain fairly constant. We do not see a vast increase in the demand for licences.
The second point raised by the noble Lord, Lord McIntosh, was enforcement, and we hope that the new provisions will be largely self-enforcing in this sense. If a trader does not obey the Act and the regulations, he cannot enforce an agreement against a consumer without a court order, and for some breaches of the Act or the order he cannot enforce the agreement at all. The third point raised by the noble Lord was publicity. I hope that I can reassure him on two aspects here. We understand that the Office of Fair Trading will be issuing guidance material to traders on the monetary orders very soon, but consumer publicity will be done nearer the time for the Part II orders, which is May 1985.
I should like to thank my noble friend Lord Drumalbyn for his compliments, and particularly for his comment that I explained the order with clarity. Coming from my noble friend, who has vast knowledge of such orders and similar matters, and who does his homework, I regard that as a specially cherished compliment and tribute. My noble friend 414 raised the question of publicity and I hope I have covered that in my reply to the noble Lord, Lord McIntosh. I was interested when my noble friend mentioned the upper limits. These will reflect increases in inflation. The fact that he regards this as plain sailing shows that he has studied these problems and understands them.
As regards the lower limits, my noble friend expressed very real concern which has indeed been voiced to my department. Perhaps I may try to answer him, and those of your Lordships who are interested, by suggesting that this area of Section 17 agreements, small agreements, is an area of the market where we have found there to be great public concern. The decision to increase the limit to £50 was taken only after considering very strong representations from consumers, from enforcement bodies and from trade bodies. We took into account the fact that the £50 limit might create a burden on the credit industry, which could be passed on to the consumer in higher costs. But we were of the opinion that the increase which we propose is the best compromise between the interests of the trade and those of the consumer.
My noble friend said that the Section 17 limit, the lower limit, should not be increased at all and that was the strongest point that he raised. The current limit was set in 1974, since when inflation has significantly eroded the value of money. We believe it is right that there should be some increase to reflect that fact, but in recognition of the need for protection in this area of the market we have increased the limit to £50, which I believe my noble friend will find helpful. My noble friend raised the point that economic life is hard. We believe that the raising of the lower limit to £50 will assure the consumer of all the benefits to which he is entitled. I stress to my noble friend that this limit does not apply to cash loans. Money lenders will remain subject to the Act, however small their particular loan.
Turning to the upper limits which are dealt with in Section 75, my noble friend asked why we had trebled them. The reason for trebling them is the one which I have already given: that prices have more than trebled since 1974. The noble Lord, Lord Kilmarnock, raised two points with me. I was grateful for his detailed study of these very complicated orders and of the Act.
§ Lord Drumalbyn
My Lords, before my noble friend turns away from the point which I raised, may I ask him one other question which I omitted to put? In the case of Section 75 orders, why was it that the Government first intended to increase the limit to £50 and then proceeded to double it to £100? It would be useful to know why this was done.
§ Lord Lyell
My Lords, may I finish my encomium to the noble Lord, Lord Kilmarnock, and then come back to my noble friend's point? The noble Lord, Lord Kilmarnock, asked about the trebling of the limits. I found it incredible, too; but it has been proved to my satisfaction that the trebling of the limits is fair, since prices have trebled since 1974. Therefore all we are seeking to do in the order is to make the figures which appear in the Act realistic. The noble Lord, Lord Kilmarnock, raised the very interesting point of the savings ratio rising from 8 per cent. to 14 per cent. I was not aware that that had happened.
§ Lord Lyell
My Lords, I apologise to the noble Lord for putting the figures in the wrong order. I have noted the noble Lord's interesting point, and I am sure that my right honourable friend the Secretary of State will keep it in mind.
In conclusion, I refer to the point raised by my noble friend, that under Section 75 the lower limit is to go up to £100. There are good reasons, which I hope I have explained, for making a small increase in the limit in the case of agreements under Section 17; but we believe that it is right to restore the Section 75 lower limit to something like its 1974 value. To enlarge slightly on this point, the limit included in the Act was intended to exclude from Section 75 those transactions where credit cards were used primarily as a convenient substitute for cash rather than as a source of credit. This aspect of Section 75, which has been validly raised by my noble friend, is very closely related to money and wage movements. The increase from £30 to £100 recognises this, and it is the overall factor which has caused us to raise these monetary amounts.
I hope that I have dealt with these points in sufficient detail; but if I have missed any we shall pick them up and I shall write to noble Lords.
§ On Question, Motion agreed to.