Consumer Credit Bill

I feel extremely churlish, after that passionate appeal, in resisting this amendment. Let me do so. The noble Baroness’s amendment is directed at the practice of lenders in the credit and store-card sector applying payments to the part of the account incurring the least interest. It is a practice for those products where different rates might apply in relation to different services—for example, cash advances—to apply any payment made to the account to the element of the indebtedness incurring the least interest. The Government’s position is that this is an issue of product differentiation and transparency. Lenders are entitled to charge different interest rates on different parts of the account. Lenders are entitled to apply the payments to the account in accordance with the terms of the loan agreement. If the terms of the agreement permit the lender to apply the debtor’s repayment in a particular order, that will bind the debtor. The Government have already made regulations to improve the quality and clarity of information provided to consumers before an agreement is made and on the face of the agreement. Under the Consumer Credit (Agreements) Regulations, the agreement must contain a statement explaining to the debtor how sums are applied and appropriated under the agreement. It is important that that statement must appear upfront in the key financial information sector of the agreement, so it is not buried deep in the footnotes. The statement must also be included in the pre-contractual information provided to debtors before they enter into an agreement. That brings me to product differentiation. Lenders are free to inform consumers that they apply payments in a particular way, including that which is most advantageous to the debtor. Indeed, the department is aware that some lenders do that. Others do not. The Bill is not designed to stifle product innovation and product differentiation. It, along with the Government’s other reforms in the area, is designed to enable consumers to understand their agreements and to receive regular information about them. If a consumer does not want the lender to repay in a certain way, they need not choose that product. The amendment also raises the issue of proportionality. It permits a debtor to specify how a repayment is made to the account. In accounts with several applicable rates depending on the service provided, the allocation should be quite complex. That potentially poses considerable administrative burdens for lenders in processing such requests and dealing with the payments to the account on an ad hoc basis. So far as we know, there is no regulatory rule requiring the allocation of payments in a particular way to clearing banks, but we will look into that and write and confirm the position. On that basis, I ask the noble Baroness to withdraw her amendment.