COMMONS AMENDMENT (Hansard, 24 October 1990)

§ The Lord Chancellor
My Lords, this is rather a complicated subject and one to which we have directed a good deal of attention over the period of this Bill's consideration. I beg to move that this House do agree with the Commons in their Amendment No. 144. I speak also to Amendments Nos. 145, 145A to 145K, 146, 146A to 146D, 147, 147A to 147E, 148 and 177. The new clauses added by Amendments Nos. 145 to 148 and their related amendments deal with tying in and they replace Clause 81 of the Bill, which is deleted by Amendment No. 144. Amendment No. 177 extends the application of the clauses to Scotland.
It has always been our intention, as signalled in the papers which preceded this Bill and the Bill itself, to deal with the problem of tying in the area of the provision of financial loans on residential property. Those who have followed the progress of this portion of the Bill with particular interest will have noticed that by comparison with the existing version of the clause these amendments now take a rather different approach towards dealing with the mischief that we have identified.
That problem is basically very simple. For most people the size of the loan they will need to buy a home and the speed with which they will need to get it makes them vulnerable to pressure. The particular form we are concerned with here is pressure to take the loan in combination with other services which are not necessarily quite what the borrower wants or needs.
1450 There has been much concern about that recently. I need only refer to the report of the National Consumer Council, Home Truths. Although the form which the provisions are taking has changed in response to the many useful points which have been put to the Government both before and since the new clauses were added to the Bill in another place, we have not altered our mind on that basic issue.
What we have therefore sought to create is a framework in which providers of residential property loans are obliged to make clear, as a condition of supplying a package to the consumer, what is available, in what form and at what cost. The clearer and more coherent structure of the new clauses added by these amendments represents a rather different approach from that taken in Clause 81 to the important topic of tying in, particularly with regard to the perceived abuse of the mortgage lender using his potential coercive power to the disadvantage of the borrower. As the Solicitor General said when speaking to these amendments in Report in another place, our touchstone in dealing with this problem must be openness, so that a borrower can see clearly how much a loan will cost them, whether that loan is provided alone or in conjunction with other services.
I should like to say a few words now to explain the main points in the amendments made in another place and the amendments to these which the Government have tabled in this House. Commons Amendment No. 145 adds a new clause prohibiting 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. If the borrower declines to take other services in the package, as many borrowers may, the lender must say that he 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.
Amendment No. 145 also creates an offence where a person advertises or promotes the provision or arrangements for the provision of any controlled services together with the making of a residential property loan unless certain requirements about information to be given are complied with. The requirements will be laid by regulations made by the Secretary of State. I should explain the reason behind this. As I have already said, in the main we have sought to put ourselves in a position to tackle the lender since it is the ability to provide the loan which is the essential key to the level of pressure which can be applied to the borrower; but because this 1451 regulation-making power in respect of advertisements and promotion extends to the arrangement for the provision of services with a loan, this particular provision applies also to the way intermediaries (brokers) market their services.
I am, however, moving a number of amendments to Amendment No. 145 in the light of further discussions with interested parties, and of our own further thoughts. The principal amendment, which has consequential results throughout the other clauses, is the amendment in line 8 (No. 145B) which changes the tying-in prohibition from one based on the lender entering; into an agreement with the borrower to one based on the provision of the loan together with other controlled services by the borrower.
To focus on the agreement is too narrow because there may well not be contractual provisions that encompass all these services, and what we have sought to do in the new amendments that I have tabled in this House is to widen it in order to base the provisions on the provision of the loan, together with other controlled services by the borrower.
The reason for this change is simple. It became clear on further consideration of the amendments made in another place that the ambit of the prohibition was not as clear and effective as intended. "Agreement" was likely to be interpreted by the courts to mean "contract", and such an interpretation could have led to legal argument as to whether a contract existed in a particular case. The Government did not consider that this was desirable, particularly in those cases which were heard by magistrates. A further difficulty was that the prohibition in the form it left the other place was based on an agreement to offer a loan together with other controlled services; apart from the difficulty of proving the existence of such an agreement, all a lender would need to do to avoid the prohibition was to make sure that he never entered into such a single agreement.
There is another important amendment covered in the amendment in line 8 (No. 145B) and that is the power given to the Secretary of State to provide for the stage, or "relevant step", to quote the amendment, at which the lender must serve the relevant notices and statements. The purpose here is to make sure that the borrower is given the information required by the clause at an appropriate stage in the transaction. I believe this flexible approach is preferable to imposing an absolute timetable which could cause unnecessary delay or loss in some circumstances.
The other amendments to Amendment No. 145 are either consequential on the deletion of the concept of "agreement" or they are merely technical drafting ones intended to tidy up the clause.
Let me turn now to Commons Amendment No. 146. This adds a new clause giving the Secretary of State power to prescribe which services cause the previous clause to apply when included in a package with a loan. They may include insurance and other financial services, valuation and surveying services, conveyancing services and removal services. The Secretary of State is also given power to define what is 1452 meant by important terms in Amendment No. 145, such as "notice", "price" and "statement". It may be helpful if I say at this stage that the Secretary of State will pay due regard to the importance of avoiding unnecessary compliance costs when drawing up these regulations; and he intends to consult widely with all those concerned before regulations are made. Amendment No. 146 also provides for connected agreements.
The amendments to Amendment No. 146 remove the references to agreements, hence the provision about connected agreements which I have just mentioned falls. The amendment at line 53 (No. 146D) gives the Secretary of State power to define the "relevant step" which I mentioned in connection with the previous clause. The remaining amendments are, again, consequential and technical drafting ones.
I turn now to Commons Amendment No. 147. This amendment adds a new clause making it an offence to fail to comply with the requirements of the new clause added by Amendment No. 145 or refuse to grant a loan, having complied with the conditions required by subsection (3) of this clause where the borrower declines other services in the package. The amendments to Amendment No. 147 are either consequential on the removal of "agreement" or are, once again, technical drafting ones.
Amendment No. 148, which is not the subject of any government amendments before this House, adds a new clause providing for enforcement. Enforcement falls to local trading standards officers and to the Director General of Fair Trading. In Scotland, however, prosecutions will, as always, be in the hands of the procurator fiscal.
Before I close, I should like to say a few words about implementation. I know that there are some lenders who would like the Government to commit themselves to delaying implementation of these provisions pending attempts by the industry to put its own house in order. Let me say straightaway that the Government would be delighted if it were possible to implement the spirit of the new clauses in advance of the relevant regulations being made and hope, for the sake of house-buyers, that the industry will see fit to do so.
There are, however, two major difficulties which the Government see for lenders in that regard. In the first place, there is no one organisation which currently represents all mortgage lenders; and, in the second place, it is doubtful whether lenders would be able to enforce a voluntary code against fringe operators.
Having said that it may be helpful to give the House some idea of the Government's timetable for implementation. The regulation-making powers in the new clauses provide for some flexibility. There will be consultation, as indeed is required by subsection (11) of Amendment No. 146, before any regulations are made. The Government intend to hold extensive consultations with interested parties towards the end of the year with a view to making regulations in the spring. That is not a fixed timetable as much will depend on the outcome of the consultations. If the 1453 industry could convince the Government that it had a simpler way of avoiding tying-in by lenders which it could police adequately, the Government could be open to persuasion that bringing the relevant provisions into force would not be necessary after all. But—and I must be clear on this point—the case would have to be a convincing one and the disclosure requirements in the clauses under discussion are the minimum that the Government consider necessary to protect the borrower.
Meanwhile, the Government believe that the amendments before the House today represent important safeguards for the consumer when buying his home. The amendments, taken together, provide a full statutory framework to cover this important area of tying-in. They were formulated after considerable detailed deliberation in another place and by taking account of representations made to the Government since that deliberation. I hope that the House will welcome them.
I should perhaps particularly mention the help that the Government have had in consultation from the Council of Mortgage Lenders and its observations on the detail of the provisions. The Government certainly wish to thank it most sincerely for its co-operation and help. That also goes in respect of others who have helped us in the formulation of the clauses. This is a difficult but important area and we have a responsibility to make the provisions as effective as we possibly can. I beg to move.
Moved, That the House do agree with the Commons in their Amendment No. 144—(The Lord Chancellor.)

§ Lord Mishcon
My Lords, the legal profession and the public at large owe a deep debt of gratitude to the noble and learned Lord for all the care that he has taken in regard to these tying in provisions. I happen to know the number of consultations that he has had and the thought that he has given to the matter. He deserves the appreciation of everyone who is concerned with the problem.
There are a couple of worries that I should like to share with the noble and learned Lord and with your Lordships. First, I appreciate what has been done in improving the Commons amendment, as we received it, by the further amendments to the Commons amendments which the noble and learned Lord has discussed. However, many of us are worried because we are not certain whether Amendment No. 145K covers mortgage brokers and agents. I say that because it would be ridiculous if mortgage brokers were free to arrange package services which would be prohibited if they were offered by lending institutions. We all know that they are heavily dependent on commission earned from associated insurance business and that they would have an even stronger incentive to package services than would have lending institutions.
I was relieved to see Amendment No. 145K because I saw the words: 1454 in the course of his business provides, or makes arrangements for the provision of, controlled services together with residential property loans; and advertises or in any other manner promotes—
(i) the provision of any controlled service or any residential property loan; or

(ii) the making by him of any such arrangements".
The noble and learned Lord has been engaged in long discussions with interested parties. If he is satisfied that the mortgage brokers and agents who effect the introductions to all the mortgage arrangements are covered by the provision, I shall cease to be miserable. However, if that is not so, there appears to be a serious lacuna.
Perhaps the noble and learned Lord will permit me to ask a question. He dealt with the question of implementation. We were all interested to hear what he said about a regulation-making period round about the spring of next year, without giving any undertaking that that would be the precise date. He referred to discussions that might take place and said that, although it would be hard to convince the Government, if they could be convinced that self-regulation would do the trick, regulations might not have to be made.
My question arose in regard to members of the public learning about those regulations when they are made. I wondered whether the noble and learned Lord had considered not only the legal aspects of the matter, as they are contained in the Bill, but the pragmatic aspects. The regulations would be useless if they were merely made without the public being made aware of them through pamphlets and other publications, possibly from the Department of Trade and Industry, saying precisely what the protection was; for example, whether it was the house-buyers' charter for which the Bill was responsible or something of that kind. If the public do not know, we shall never know whether the provisions of the Bill are known to the prospective borrower or whether there have been contraventions.
If the noble and learned Lord would kindly help me on both those matters, I would immediately revert to the praise that we on these Benches want to give him with regard to these protective provisions for the public.

§ The Lord Chancellor
My Lords, in answer to the first question, my understanding is that Amendment No. 145K covers brokers and intermediaries. That is certainly the amendment's intention. On the question of bringing the regulations to the public's attention, the intention is that the persons involved in the transactions would require to bring to the attention of people concerned various matters about which we believe they should know under the regulations. I understand that the noble Lord would like wider publicity in case the regulations are not complied with. Of course, if they are not complied with the matters to which I have just referred do not reach the client.
The Director General of Fair Trading already provides publicity with regard to the safeguards available to house buyers. He regards that publicity as important. I undertake that my right honourable 1455 friend the Secretary of State will have his attention drawn to what the noble Lord has said so that he may consider what publicity may be required, because obviously we are most anxious that those safeguarding provisions are effective. That means that the public need to have knowledge that the safeguards exist.

§ Lord Mishcon
My Lords, I am most grateful.