Consumer Rights Bill
Debate between Baroness Drake and Baroness Benjamin
Baroness Drake (Lab)
My Lords, I support Amendment 47. The findings of the different charitable organisations about the prevalence and impact of payday loans are rather chilling and depressing. I will not deploy all the statistics referred to by noble Lords today and in Committee other than to re-stress that Ofcom’s findings show that 80% of payday loan adverts are shown before the watershed. The Children’s Society has found that 55% of children aged 13 to 17 recognise the name of at least three payday lenders—I would have been distressed if my children had known that information at that age—and that parents aged 18 to 24 years increasingly see payday loans as a normal means of money management: almost 40% of them have used payday loans at some point. That is all illustrative of a serious problem.
As many noble Lords have articulated, the characteristics often revealed by people who take out payday loans are all too familiar. A high proportion of borrowers experience financial distress, many come from less well off socioeconomic groups, and few have assets. A significant number of borrowers have two or more loans, which exposes them to unsustainable and spiralling debt. Many borrowers get these payday loans to cover basic needs, including the needs of their children, yet many are in acute repayment difficulties. According to the CMA, more than one-third of loans were not repaid on time or at all, which often brings considerable consumer harm relative to the amounts that were borrowed in the first instance.
Successfully addressing the problem of high-cost credit requires a multifaceted approach and, as my noble friend Lord Mitchell acknowledged, much action has already been taken by organisations such as the FCA. However, taking steps to protect children from exposure to advertising for high-cost loans, which is both ill suited for the children and corrosive in its impact upon parents and families as a whole, is an essential ingredient of that multifaceted approach.
Children exposed to particularly suggestive loan adverts pressurise their parents to take out those loans to buy things. Yet we know that families trapped in problem debt are more than twice as likely to argue about money problems, which leads to stress on family relationships and causes emotional distress to the children. Many noble Lords have referred to pester power, which arises from children’s exposure to payday loan advertising. However, the potency of that power is so great because people love their children. If you are on a low or modest income, it is very hard to say no to your children if they are missing out on social activity or feel disadvantaged in comparison to their school friends. How much harder it is at Christmas to say no to the children you love, when you have no money and your children do not understand why they cannot have something in their stocking when you just need to respond to those funny furry grannies who are offering you some money.
Pester power has a powerful emotional pull on parents, and the advertising has such a powerful impact on the children. This advertising masks a business model that is based on exercising great persuasive power on low-income households and their children. There is a continuing need to address the behaviour of firms in this high-cost consumer credit market. These companies have substantial funds for marketing and advertising. That allows them to have great persuasive power over vulnerable people and their children. The prevalence of the advertising has an impact on many people’s choices. In the short term, there are the effects of pester power and increased debt; in the longer term, people see credit as the normative solution to managing their finances.
Even on the FCA’s own analysis, after the cap is introduced the proportion of borrowers who experience financial distress as a direct result of taking out payday loans is expected to remain as high as 40%. Notwithstanding the positive actions taken to date by bodies such as the FCA and the Advertising Standards Authority, there is still a clear and compelling need to send a strong and clear message by placing in statute the responsibility of high-cost lenders to run their advertising appropriately. If the advertising of alcohol and gambling can be heavily regulated to help prevent the normalisation of alcohol abuse, why on earth would one not want to take the fullest action to prevent the normalisation of the potentially harmful behaviour of taking out loans that are unaffordable and get you and your family into debt?
As the noble Lord, Lord Alton, referenced, the sheer quantity of adverts for payday loans seen by and impacting on children, young people and their parents made me shudder when I saw the figures. In 2012, 596 million adverts were seen by children compared to 3 million in 2008. If that is not an aggressive business plan, I do not know what is. That is 200 times more adverts over four years. Some organisations will quote aggregate statistics to seek to state more modestly the level of payday loan advertising, but we should remember that the charitable organisations are so concerned about this because they see and measure the concentration of risk from these adverts on vulnerable families. Never mind the aggregate figures: my children and I are not vulnerable to payday loans, because I have a good income. It is the concentration of risk from these adverts on these children and these families that poses the great risk. We need to remember that what may be a small amount taken out in a loan that is borrowed for a pressing purpose becomes a much bigger debt if the loan is not repaid.
The current advertisements, which other noble Lords have referred to, contain jolly characters. They can appear funny or appealing; they have catchy jingles. In fact, they have lots of characteristics but usually not the obvious characteristic, which is to make absolutely clear that they are presenting a very serious form of credit with high risk. An advert can have a cuddly granny, but it will not spell out the risk to your family if you pester your parents to take out such a loan.
Of course, children watch programmes and adverts in other ways and at other times. People are changing their viewing habits and watching programmes on laptops, tablets and iPads. That, too, needs to be addressed. Protection for children needs to be modernised, but that is not an argument against the watershed period remaining sacrosanct for as long as possible and keeping those adverts away from children before the watershed. This really is a compelling amendment.
Baroness Benjamin (LD)
My Lords, I rise very briefly to support the amendment, as in the past I have spoken in support of this issue in the House. I am also supportive of the Children’s Society “The Debt Trap” campaign, which seeks to protect children from payday loan adverts by banning payday loan advertising before the 9 pm watershed.
As we have heard, Children’s Society research reveals that too many children are frequently seeing irresponsible payday loan adverts, which in the long term can have an influence on their financial education and attitudes towards debt. I believe that children should learn about borrowing and money in a responsible way—and also about the consequences that borrowing can bring—not from the irresponsible way in which payday loan adverts on television are performed. They can often be very funny animations with seductive, very popular, “can’t wait to see again” adverts.
It is crucial that we protect children from unsuitable advertising before the watershed, in the same way that we have legal restrictions to protect children from gambling, alcohol and junk food advertising. I believe that that will put a stop to the damage that debt does to children’s lives and beyond—long into their adult lives. I very much look forward to a positive response from my noble friend the Minister on this very important amendment.