Legislative Reform (Consumer Credit) Order 2008

rose to move, That the draft order laid before the House on 17 June be approved. The noble Lord said: My Lords, the draft order is to amend the Consumer Credit Act 1974 in three ways: first, to exempt from regulation buy-to-let lending that meets certain specified conditions; secondly, to clarify the position on the provision of statements for fixed-sum credit agreements, such as personal loans; and, thirdly, to provide definitions of what constitutes ““payments”” for the purpose of issuing notices of sums in arrears for fixed-sum and running account credit agreements. Examples of these include credit cards and consumer hire agreements. The measures update the provisions introduced into the 1974 Act by the Consumer Credit Act 2006, which received Royal Assent on 31 March 2006. The measures therefore ensure that the regulations fully reflect the original policy intentions. Until April 2008, the vast majority of buy-to-let loans were exempt from regulation. This was either because lenders were able to use an existing exemption under the 1974 Act or because the loan was for more than £25,000. The £25,000 limit was removed by the 2006 Act, effective from April, extending protection to all consumers’ credit agreements, regardless of value. This was in response to the changing nature of borrowing, with more and more loans above £25,000 not regulated. But it is not our intention to regulate buy-to-let lending in instances where the loan is secured on a property and the borrower, or a relative, intends to occupy less than 40 per cent of that property. Such activity is mainly for investment or business purposes. The risks to the borrower’s home are low in the event that they have difficulty repaying the loan. Currently, there is no evidence to suggest that regulation is needed in such cases. A transitional arrangement has therefore been put in place to exempt buy-to-let loans from regulation until such time as the draft order comes into force. The draft order creates a new exemption from regulation under the 1974 Act, covering consumer credit agreements for buy-to-let purposes. It applies where the loan is secured on the property and where the owner, or a relative, intends to occupy less than 40 per cent of the property. The measure will maintain the status quo regarding regulation for buy-to-let lending at no additional cost to industry or detriment to buy-to-let investors. Both will continue to benefit from a level playing field in the market. The 2006 Act introduced a new requirement for lenders to provide borrowers with regular statements for fixed-sum credit agreements. The statements are intended to cover a period of up to one year, run consecutively, and be provided within 30 days of the end of the period they cover. However, the new requirements of the 2006 Act, taken together with Regulation 11 of the Consumer Credit (Information Requirements and Duration of Licences and Charges) Regulations 2007, do not fully meet these objectives. The existing wording in the 2006 Act does not allow for the provision in the 2007 regulations which gives the creditor 30 days to send the statements. The draft order therefore revokes Regulation 11 of the 2007 regulations and amends the 1974 Act. It provides that under a regulated fixed-sum credit agreement, the lender must give the borrower statements covering consecutive periods of not more than one year, and that such statements must be provided within 30 days of the end of the period to which they relate. The 2006 Act introduced a requirement for lenders to provide notices of sums in arrears to borrowers with regulated fixed-sum and running-account credit agreements, and for owners to have a similar obligation under consumer hire agreements. Certain conditions have to be satisfied before this obligation arises, some of which relate to payments. This has given rise to a discussion over the precise definition of the word ““payments””. The industry has suggested that a definition of ““payments”” is required to avoid it being construed more widely. A broader interpretation might include any sums falling due under the agreement at any time, rather than just scheduled repayments and hire payments—for example, default sums that might become due as a consequence of a missed regular payment or over-limit amounts on credit-card agreements which could become payable immediately the customer exceeds their credit limit. As a result, first notices of sums in arrears could be triggered more quickly than would otherwise be the case. The draft order therefore defines ““payments”” for the purpose of issuing notices of sums in arrears as those payments made at pre-determined intervals provided for under the terms of the agreement. In the case of consumer hire agreements, ““payments”” is defined to mean those payments made in relation to any period of hire as provided for under the terms of the agreement. This measure will ensure that the costs to industry of issuing statements and notices of sums in arrears are kept to a minimum by providing greater clarity. It will also avoid any unintended or unnecessary changes to systems. In addition, it will provide more clarity for consumers, who will receive information in a comprehensible and consistent manner. I believe that the order will benefit both consumers and businesses. It clarifies the obligations of industry, it simplifies the framework for consumer credit, and I commend it to the House. I beg to move. Moved, That the draft order laid before the House on 17 June be approved. 12th report from the Delegated powers Committee.—(Lord Brett).