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Sale of Student Loans Bill

As we have heard, this group of amendments addresses onward sales. First, I think that we all share the underlying aim behind each of these amendments. We all want to ensure that borrowers are as much protected in further transfer arrangements as they are when the loan is first sold. We are all rightly keen that there should be no detrimental impact on borrowers, either resulting from the initial sale by the Government or in the event that the purchaser then sold the loans on. I do not believe that there are any significant differences of principle between us in this debate, but rather a consideration of the best way of giving effect to this aim. It is important to say that an onward sale of the loans is extremely unlikely. The loans will be owned, as we have established, by a special-purpose company, and it is the bonds that the company issues that will be traded. The selling on of the legal title to the loans, as opposed to the economic rights to income flows derived from the loans, is an unusual event. None the less, with ownership of the loans comes the possibility of being able to sell the loans, so Clause 3 caters for this possibility. We cannot sell the loans without this possibility arising. Before addressing each individual amendment, I remind Members of the Committee of the key protections that borrowers will enjoy under this Bill. The main protection for borrowers will remain in place even without Clause 3(6). Purchasers will not have the power unilaterally to change the terms and conditions of student loans. Clause 3(6) has been included in the Bill to provide an additional level of protection, and would, for example, enable the Secretary of State to ensure that borrowers whose loans had been sold could access the same complaints procedures as those with loans retained by the Government. Amendment No. 11 addresses options for methods by which the Secretary of State can be a party to onward sales, so ensuring that the Government have flexibility to provide protection for borrowers in future sales. I understand the amendment intends to make it mandatory to follow one or other of the alternative approaches set out in Clause 3(6)(b) and (c), although as currently drafted it would make both mandatory, which would not work. I have not judged it necessary to make such a provision about onwards sales mandatory in initial sales contracts, following the general approach of the Bill in enabling a range of issues to be covered in the transfer arrangements. But we consider that such a proposal could work provided that it was clearly about using one of the possible alternative approaches to this particular issue and catered for the possibility that another contractual device to achieve the same end may be more appropriate, or become so in the future. I am happy to take the matter away and consider whether a government amendment could be tabled on Report that preserves the options we need within a mandatory provision. On that basis, I hope that the noble Baroness, Lady Verma, will withdraw Amendment No. 11. Amendment No. 12 proposes some additional prohibitions about onward sales. As I have already said, we think that it is unlikely that the loans themselves will be sold on, but purchasers must have the right to do so. Even if loans were sold on, we do not expect a significant fragmentation, and, as my honourable friend the Minister for Higher Education and Lifelong Learning has made clear in debate in another place, the Government would ensure that there was a notification clause in any sale or onward sale contract, so there is no question of losing track of loans or purchasers. We cannot exert substantial control over to whom purchasers might sell loans in the future, even though I must stress that we see that as extremely unlikely. Once we have sold an asset it belongs to someone else, and we cannot decide whether it is sold again or whether a subsequent purchaser will be resident in England and Wales. Indeed, EU law would in any event prevent us confining ownership to an organisation in England and Wales. The loans are governed by English law, wherever a purchaser may happen to be. Given the way loan repayments are collected, through PAYE, it is hard to see how the location of a purchaser could have any effect on the borrower or how a purchaser could somehow evade the Secretary of State and yet still obtain his money. Attempting to constrain onward sale would also harm the prospects of meeting the objectives that we believe are widely shared. In seeking to prevent sales to multiple purchasers, the amendment would only allow any purchaser to sell all of their holding of loans to one further purchaser. That may impact on the price achieved and be a significant barrier to achieving good value for money. Critically, trying to exert substantial control over matters such as onward sale would mean that the initial transaction would not constitute a sale and would not make funds available for investment in other priorities. We cannot have it both ways and must recognise that if we sell assets, they belong to someone else to dispose of. To try to control onward transfer in the way envisaged by Amendment No. 12 would make it likely that the loans would be classified as remaining on the Government’s books. We should keep in the forefront of our minds that the Bill will not give purchasers the right to change terms and conditions of the loans; and so this right could not be transferred to a further purchaser as part of an onward sale. That is the borrowers’ primary protection. On that basis, I hope that the noble Baroness will feel able to withdraw Amendment No. 12. Amendment No. 13, moved by the noble Baroness, Lady Sharp, could have some undesirable and perhaps unintended consequences. It would require the Secretary of State, if pursuing one of the alternative options for protecting borrowers through onward sales, to enforce the terms of such a contract in all circumstances. In some circumstances the Secretary of State might want to intervene, if some right of the borrower was potentially at risk. It cannot be right, however, for the Secretary of State to be concerned in all cases with the bargains reached by commercial entities between themselves, much less for him to have to enforce them against one or other party on an assumption of who may be at fault. The Government must be able to retain the right to consider whether, and in what way, to respond to any suggestion of a breach, depending on the type and manner of the breach. It would not be right for the Government to have to step into all issues surrounding onward contracts. I hope that the noble Baroness will agree not to move the amendment, given that reassurance. Finally, Amendment No. 14 is a government amendment, offering clarification on how the Bill addresses onward sales. It has always been our intention that Clause 3, which deals with onward sales of loans or ““further transfer arrangements””, related to the transfer of legal title of the loans. Our expert advisers tell us that we need to distinguish in this clause between the transfer of title, where we need to protect borrowers, and the technical creation and onward transfer of equitable rights—rights to the repayments—to the various other parties that occurs in setting up the special-purpose vehicle and securitising the loans. To seek to regulate this division of equitable interests would be both unnecessary and unworkable given the complexity of the structures. It is the legal owner only who has a relationship with the borrower and with the student finance system as servicer. If we do not make that distinction, potential purchasers and investors may be deterred from participating in loan sales in the mistaken belief that the Secretary of State will need to be a party to all the transfers and onward transfer of equitable rights that can take place in the context of a securitisation. We are talking about the onward sale of bonds rather than the title of loans. Proposed new subsection 3(8) is simply a clarification that the clause does not apply to these types of transfer. I hope that that amendment will prove acceptable. I beg to move.