Extortionate Credit Bargains (Hansard, 12 December 1991)

§ Mr. Leigh

I am grateful to the Director General of Fair Trading, Sir Gordon Borrie, for his recent and valuable report on the operation of the present provisions of the Consumer Credit Act on extortionate credit bargains. I have consulted widely on the basis of the report's findings and recommendations.

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While I am reassured to learn from the report that problems of extortionate credit arise only in a minority of cases mainly on the margins of the market, I have concluded that the present provisions of the Act are inadequate. Amending legislation is necessary and should be introduced when parliamentary time permits making a number of important changes to sections 137 to 140 of the Act, broadly on the lines recommended in the director general's report.

I agree with the director general that the concept of the "extortionate credit bargain" currently in the Act should be replaced by that of the "unjust credit transaction".

I propose that one test of whether a credit transaction is unjust should be that it involved payments that were "grossly excessive". In this respect, I differ from the recommendation of the director general, who recom-mended that the test should be that the payments were "excessive". In my view, the latter could result in too many cases coming to court where the terms were only slightly more onerous than usual. A credit transaction would also be unjust if it involved business activity which was deceitful or oppressive or otherwise unfair and improper, whether unlawful or not.

I propose that section 138 of the Act should be amended to allow the Secretary of State to make regulations, following consultations with the director general, to set out the detailed factors that the court should take into account in determining whether a credit transaction was unjust. The director general's report made a number of detailed recommendations as to the factors that might be prescribed in the Act. I consider it more appropriate in the interests of maintaining flexibility for dealing with future developments to deal with such matters in regulations.

I propose that the courts should be required to notify the director general of the outcome of any case where they have considered whether a credit transaction was just or unjust. In addition, the Act should be amended to allow, but not require, a court in both defended and undefended cases to re-open of its own motion an unjust credit transaction.

I propose that the director general should have a power to initiate proceedings for a declaration by a court that a particular credit transaction or any particular aspect of it should be deemed to be unjust. Such a power should also be available to local trading standards officers but only with the permission of the director general. In such cases I consider the burden of proof should be on the director general or trading standards officer rather than on the creditor.

Finally, I agree with the director general that the penalties which can be imposed on summary conviction for unlicensed—that is, illegal—provision of credit should be increased. At present, magistrates courts can impose only a fine up to the statutory maximum of £2,000. I propose that they should in future also be empowered to impose a custodial sentence not exceeding six months' imprisonment. This would follow the precedents of the Financial Services Act 1986 and the Insurance Companies Act 1982.