Consumer Credit Bill

moved Amendment No. 31:"Page 32, leave out lines 12 to 19 and insert—" ““(   )   This section applies where the OFT has reasonable grounds for believing that a licensee or an associate or a former associate of a licensee— (a)   has engaged in conduct which breaches any provision of, or under, the 1974 Act; (b)   is engaging in such conduct; (c)   is likely to engage in such conduct.”” The noble Lord said: This amendment introduces the concept that any use by the OFT of what are called intermediate powers under the licensing provisions must be capable of being objectively justified. A major criticism of the current licensing system under the Consumer Credit Act 1974 is that it fails to provide the OFT with sufficient powers to tackle improper or unfair conduct by consumer credit businesses. Clause 38 is part of a package of measures which will provide the OFT with new powers to apply intermediate sanctions to tackle behaviour that causes detriment to consumers but which does not render a business unfit. While we support the broad thrust of the reforms to the licensing regime, we are concerned with the wide discretion given to the OFT under this clause. Amending Clause 38 so that the OFT has reasonable grounds to impose requirements on licensees, as opposed to being dissatisfied with a licensee’s conduct, would provide some of the consistency and clarity that the industry should expect from the OFT when discharging its functions under the Act. Clause 38 inserts a new Section 33A into the 1974. That new section,"““applies where the OFT is dissatisfied with any matter in connection with—""““(a) a business being carried on, or which has been carried on, by a licensee or by an associate or a former associate of a licensee;""““(b) a proposal to carry on a business which has been made by a licensee or by an associate or a former associate of a licensee; or""““(c) any conduct not covered by paragraph (a) or (b) of a licensee or of an associate or a former associate of a licensee””." In terms of enforcement, the provisions proposed in the Bill would give the OFT greater powers, backed by a wider range of sanctions. Much of the detail is missing from the Bill and, while we do not oppose the introduction of these powers in principle, we are concerned that the system should be as transparent and open as possible. The key provision in Clause 38 allows the OFT to take action against a business when it is dissatisfied in any matter in connection with that business, whether or not it relates to a licensing issue. In our view, that gives far too wide a discretion to the OFT, which discretion should instead be restricted to circumstances when there has been a breach of the licensing criteria, which themselves should be objectively set. My honourable friend the Member for Wealden said in the other place:"““Dissatisfaction is not a term found elsewhere in law. By definition, anything less than full satisfaction involves some element of dissatisfaction. Dissatisfaction is certainly not the same as finding something unsatisfactory””.—[Official Report, Commons Standing Committee D, 28/6/05; col. 106.]" The Joint Committee on Human Rights stated that the new power to impose requirements on licensees is ““extremely broadly drafted””. It goes on to find that,"““the lack of specificity in relation to the conditions on which it is exercisable, the purposes for which it can be used and the definition of what may be required, in our view make it tantamount to a plenary power in the OFT to impose whatever requirements it may wish””." It went on to express concern that,"““the entirely unfettered scope of this power fails to satisfy the requirements of reasonable legal certainty and also gives rise to a risk of disproportionate use of power in practice. We are therefore concerned that this provision as currently drafted, without greater specificity, gives rise to a significant risk of incompatibility with Article I Protocol I (ie of the European Convention on Human Rights)””." The Minister in the other place said:"““We believe that the provisions are compatible with the European convention on human rights, and we have said so””.—[Official Report, Commons Standing Committee D, 28/6/05; col. 107.]" In light of the JCHR’s clear and strongly worded comments, will the Minister expand on the grounds for the Minister in the other place so opining? Against such an authoritative statement as that of the JCHR, it is not enough to say simply that you believe the provisions are compatible, without giving your grounds. Under this new section, the OFT could, by notice, impose special conditions on, or take undertakings from, licensees in order to address unfit conduct. These special conditions would be specific to a particular licence-holder, to ensure that the business is meeting its fitness requirements. A breach of a condition could lead to the licence-holder having a financial penalty imposed by the OFT or, ultimately, the revocation, suspension or variation of its licence. I shall speak for a moment on appeals. The Minister in the other place said:"““Appeals relating to other requirements can be made to the appeals tribunal, which provides a safeguard against the OFT exercising these powers unreasonably””.—[Official Report, Commons Standing Committee D, 28/6/05; col. 107.]" It is a reasonable assumption that, were the OFT to impose a requirement on a licence, although there is a line of appeal for the affected individual or business, this may be of limited comfort or assistance. It is also important to bear in mind that while there is a right of appeal in areas such as a dispute between a lender and a consumer about a credit agreement, there is no right of appeal against any decisions made by the OFT under its information-gathering powers. Although an appeal would be by way of a fresh hearing, it must be likely that the appeal tribunal would want any appellant to show there were grounds for an appeal. One can reasonably imagine that this would mean trying to demonstrate that the OFT was not dissatisfied or that the requirement it imposed did not seek to address the cause of the OFT’s dissatisfaction. When the OFT expresses dissatisfaction with a particular course of conduct, what would the business be appealing against? The OFT will have a wide remit to feel dissatisfied with anything. There is no definition of, nor indication of any restriction on, the word ““dissatisfied””. There is also no restriction to matters in relation to which the OFT may express its dissatisfaction, and it is not restricted to matters or activities regulated by the Act. The OFT is required to have regard to published guidance on the use of these powers—Clause 42 inserting new Section 33E—but the drafter of the guidance is none other than the OFT. The OFT, in draft guidance provided for Parliament during the Commons Committee stage, and in a bundle more recently provided to your Lordships, provides little guidance on the circumstances in which it may issue a determination. As drafted, we believe that the clause fails the test of good regulation because the threshold is set too low and is not susceptible to objective justification. The OFT may impose a requirement in relation to a business carried on or proposed to be carried on under the licence simply where it is dissatisfied with any connected matter, and the matters giving rise to the OFT’s dissatisfaction can include absolutely anything at all. The proposed amendment deals with those issues by introducing an objective test of ““reasonable grounds for believing”” and linking those matters which may give rise to the OFT exercising its power in licensing issues such as a breach of the 1974 Act as amended by the Bill when it becomes law. I beg to move.