Contribution
My Lords, I will speak to my non-diminution Amendments 2 and 3, and to Amendments 4 and 5, which stem from them. In Committee, the Government made it clear that they wish to remove tail risk for firms—a theme running through the changes to the CCA and FOS. I agree that issues such as font sizes and business practices need updating—I would certainly prefer not to have to agree instantly to a garbled recitation of terms and conditions over the phone just to access basic service contracts—but the Consumer Credit Act is fundamentally about protecting consumers from bad corporate behaviour. Aside from the much-cited font issue, tail risk usually arises from bad behaviour that simply takes a long time to surface. There is no justifiable reason for remedy to disappear.
Although I see the attractions of using the FCA framework, I do not accept that there should be a time limit after which bad behaviour is insulated from rectification, or that protections requiring judicial remedy might fall away—over which there is no current certainty. That is the purpose of my non-diminution amendments: to allow modernisation, but not at the cost of significant consumer rights.
A long-standing defect in the CCA illustrates the point: the Act was drafted in 1974, before securitisation existed. As a result, consumer credit has been sold on in ways that mean that the statutory definition, and thus obligations, of the lender no longer apply. This was a happenstance of financial evolution, not intentional design, yet it seriously degrades a regulated product and directly created the modern mortgage prisoner problem that my noble friend Lord Sharkey has brought to this House more than once. One can foresee the same happening with student loans once they are sold off.
The solution is straightforward. Whenever any right stemming from lending or credit is exercised, including the setting, levying or collecting of interest, the corresponding obligations must travel with that right. That must hold even where responsibilities are split across multiple entities under securitisation structures that currently allow each actor to claim it is not the statutory lender. This is entirely consistent with the CCA’s original assignment provisions, and we have precedent, because the MCOB rules already require obligations to follow the exercise of rights in mortgage services.
This principle works. We explained it to the previous Minister and officials before the summer, providing copies of my first amendment and documentary explanation. I recognise there have been changes on the Government’s side, but it is regrettable that there has been no engagement since, especially as collaborative working on good ideas was a stated commitment of the new Prime Minister.
Some may ask: who loses? The answer is that no one suffers unjustified loss. When a regulated consumer product is transferred, the protections attached to it must remain intact rather than be severed, whether by design or accident. For consumer credit, this simply maintains existing rights or, in the case of mortgage prisoners, restores them prospectively. But they had those rights when they took the mortgages out.
Taking the same principle to student loans, once sold into the private financial system, they must carry with them the standards of respectable financial products. Borrowers must be protected from predatory interest rates and, under international accounting rules, when projected non-repayment exceeds 50%, the entire corpus of loans, not just the unpaid part, is pulled on to national debt metrics. Allowing predatory interest rates simply deepens that problem.
This is the logic behind this family of amendments. I urge the Minister to engage constructively as the Bill progresses. As he will know, when I have a principled solution in my sights, it does not go away, because it rests on my conscience, as it should on his.