Creditworthiness Assessment Bill [HL] — House of Lords, 2018-05-11
Topic: Housing
David John Maclean (Conservative, Centre-right): My Lords, I beg to move the amendment in the name of my noble friend Lord Naseby. He cannot be here today but he has asked me to make it clear that he is not opposed to the principle of this Bill, as am I, but he is worried that it ties the hands of the FCA and is too prescriptive. That is why he seeks to delete the word "must" in the first group of amendments and substitute it with "may"; rather than the instruction to the FCA to "ensure that", he suggests "consider whether"; and the word "should" in the final amendment in the group is a grammatical change In all of these amendments he was guided by the advice of the Consumer Credit Association and I would like to justify the amendments by explaining the CCA’s concerns. I want to set out this properly in this group so that there is no misunderstanding where my noble friend is coming from—the amendments are not a rabid desire for unfettered market forces. These are not so much probing amendments as airing amendments, if your Lordships’ will accept the term, to air the concerns of the CCA. I know that the noble Lord, Lord Bird, with his tremendous experience in this matter, has considered them and will have impeccable detailed arguments against them. If that is the case, then we will have succeeded in airing these amendments today The Consumer Credit Association says that it is not against the general evaluation of credit referencing systems; however, they consider it inappropriate and disproportionate for the law to force firms to use and pay for rental data—or any other specific type of data—in their commercial assessment. It is concerned about what it calls unintended consequences At face value, most people would think that requiring lenders to use more data would inevitably lead to better decisions and improved consumer outcomes. However, a number of complexities appear not to have been properly considered, says the Consumer Credit Association. For instance, the rents of just under 4 million households—that is 40% of the rental market—are subsidised via housing benefit to the extent of about £5,000 per household per year. This means that the rent payments in these cases reflect receipt of subsidy rather than a tenant’s propensity to pay. Where the subsidy is paid direct to the landlord, this effect is even more pronounced. In the same vein, non-payment of rent may often reflect delays in paying the benefit rather than the unreliability of the tenant. It also says that well over 1 million tenants are already in arrears on their rent. The proposal would not help this large group; on the contrary, these consumers would find it more difficult to access credit and would therefore become even more financially excluded The collection and use of rental data is being marketed to landlords as a means of reducing arrears. The proposal would give unscrupulous landlords who fail to repair their properties increased leverage over tenants, because it would increase the risks for a tenant making any reasonable attempt to withhold or set aside their rent against getting repairs done to the building The CCA also says that it is not a given that council tax and rental data would add value for all types of lenders in all situations, yet all firms would be required to pay for this data whether or not they used it. This would be commercially inefficient and the cost would be passed on to consumers through higher prices for credit. It is the CCA’s strong view that firms are the best judges of whether it makes commercial sense for them to subscribe to products such as rental exchange and credit lending. Compelling them by law to do so would, on the other hand, be inappropriate Consumer representatives are divided on the potential impacts of the proposal but have flagged the risks of possible harm to some consumers. The Centre for Responsible Credit, for example, has urged caution, because failure to pay rent could lead to the loss of a home, bailiff action and, ultimately, imprisonment. Mainstream lenders are unlikely to consider the data predictive. For many people who miss a rental or council tax payment, it could lead to complete credit exclusion or higher cost credit The rollout of universal credit is expected to lead to a significant increase in rent arrears for housing benefit claimants. Similarly, private tenants face rising rents and a freeze on local housing allowance rates. In evidence to the Treasury Select Committee on 28 February this year, both StepChange and Citizens Advice acknowledged the potential negative impact. StepChange said: "That is fine if the thing that is going to be included is something that you are paying well and on time. If you are behind on your rent and your council tax payment, all that is going to do is enhance the social exclusion for those individuals" Matt Upton of Citizens Advice said: "It is important to acknowledge that it is a double-edged sword. As you say, we see lots of people struggling to pay those bills, and that will not necessarily affect them in a positive way … of the clients we see who struggle to access credit there is a proportion for whom credit referencing is a factor. For a greater proportion it is not the big factor" The ambition to increase access to credit for those who rent is laudable. As said by the noble Lord, Lord Bird, I believe that it will help about 80% of tenants, but the CCA says that the proposal’s potential benefits are uncertain, unquantified and currently unsupported by robust independent evidence. My noble friend Lord Naseby thinks that more studies on this must be done but he respects the point of the noble Lord, Lord Bird, that millions of honest, hard-working tenants who pay their rent and council tax would benefit from having their good record of payments used to get a mortgage or cheaper white goods. I know that the noble Lord, Lord Bird, is keen to pick up the 20% who are in debt and seek ways to get them out of that hole, but my noble friend finds the CCA’s worries and concerns quite persuasive. As I read them, I found them persuasive too. I look forward to the answers of the noble Lord, Lord Bird, and the Minister. All we wanted to do was give these amendments an airing, raise the CCA’s concerns and wait to hear the answer.