Credit (Marketing) (Hansard, 19 December 1990)

§ Mr. Leigh

The Government have over an extended period made known their view that there is a need for an improvement in credit marketing practices. They welcome the statements about the marketing and provision of credit in the draft code of banking practice and, in particular, the statement that banks and building societies will act responsibly and prudently in the marketing and advertising of credit. However, a code which applies only to banks and building societies cannot be a complete answer to the problem of irresponsible practices in the credit market. The consultation paper on the draft code acknowledges this.

The Government have concluded that there is a need to tighten the legislation on consumer credit. The Department of Trade and Industry is today issuing a consultative document which gives details of proposals for new regulations under the Consumer Credit Act 1974 and also for amending the Act itself. It is proposed to make four new sets of regulations under the Act.

First, the Consumer Credit (Advertisements) Regulations 1989 are to be amended. The main changes will be to require advertisers to provide additional information in particular about the affordability of credit and the risks of variable interest rate agreements. In addition, advertisements for residential property loans which mention the availability of certain related services from or through the lender will need to include a statement that loans are available whether or not the related services are taken from or through the lender.

Secondly, the Consumer Credit (Agreements) Regulations 1983 are to be amended. It is proposed that, with certain exceptions, regulated credit agreements will in future have to include the statement "Do not sign this agreement unless you are sure that you can afford the payments". In addition, advertisements for secured loans and foreign currency loans will have to include warnings about the special risks entailed in this type of borrowing.

Thirdly, new regulations on the conduct of consumer credit business will require businesses licensed under the Consumer Credit Act to take precautions in the direct mailing of credit circulars to reduce the risk of such circulars going to minors or to people who do not wish to receive them. In addition, there will be a ban on making unsolicited increases in credit limits.

The conduct of business regulations will also prohibit the use by licensed consumer credit businesses of negative options (and other techniques which rely on consumer 183W inertia) to sell credit-related services. The decision to legislate on inertia selling was taken only after careful consideration of the proposals by the finance and insurance industries for a code of practice on the use of negative options to sell payment protection insurance. Whilst the code would have gone a considerable way to guard against the risk of consumers being induced to buy insurance which they did not really want, the Government consider it to be a matter of principle that consumers should not be charged for services which they have not positively and expressly requested.

Fourthly, a new regulation on pre-agreement disclosure of information will require lenders under regulated credit agreements which are secured on property to explain to prospective borrowers the commitment entailed in variable interest rates.

In addition to making these regulations, the Government intend, as soon as legislative time is available, to introduce a Bill to improve the protection provided by provisions in the Consumer Credit Act 1974 on sending credit circulars to minors and on cancellation rights as well as making the important deregulatory changes announced in the White Paper "Releasing Enterprise" in November 1988.

Section 50 of the Act, which prohibits the sending of unsolicited credit circulars to minors, is to be made more effective. There have been a number of complaints from parents whose children have received credit circulars. Lenders and intermediaries who breach the prohibition can shelter behind the defence which section 50(2) provides for a person who has sent a circular to a minor if he can prove that he did not know and had no reasonable cause to suspect that the person to whom he sent it was a minor. It is therefore proposed to remove this defence, but not the defence under section 168 that the person who sent the circular to a minor took all reasonable precautions and exercised all due diligence to avoid such an act".

The effect of removing the section 50(2) defence would therefore be to require those issuing credit circulars to take reasonable precautions and exercise due diligence.

It is also proposed to extend the cancellation rights provided by section 67 and 68 to cover debtor-creditor-supplier agreements (as defined in section 12 of the Act) if they are signed on trade premises following face-to-face negotiations. The aim of this proposal is to allow consumers the right to cancel credit agreements which they may have entered into on impulse without giving sufficient thought as to their ability to make the repayments. In order to reduce the inconvenience which may be caused by the unwillingness of traders to allow consumers to have goods or services before the end of the cooling-off period, the cooling-off period for this new category of cancellable agreements will be only two days rather than the five days which applies to other cancellable agreements.

The 1988 White Paper "Releasing Enterprise" proposed that protection against extortionate credit bargains should be strengthened by allowing a court to reopen a credit agreement of its own motion. It remains the Government's intention to amend the Act in this way. In addition, the Director General of Fair Trading has been asked to report on whether there is a need for any other reforms of the Act's provisions on extortionate credit agreements.

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Copies of the consultative document have been placed in the Library, and also copies will be available from the Vote Office.