Consumer Rights Bill
Debate between Baroness Drake and Lord Harris of Haringey
Lord Harris of Haringey
My Lords, I rise briefly to support Amendment 105B, and perhaps I may tender some advice to the Minister. I suspect that this is one of those issues that, were it to be put to a vote in the House at Report stage, it would not be a happy moment for the Government, who would oppose it. However, I am sure that the Minister supports the objectives here.
We are all clear about how wrong it is for companies to be targeting advertising material at children and to rely on pester power to deliver what they want. My reason for speaking is because I agree with everything that has been said in this debate bar about two sentences. Those two sentences were spoken by my noble friend Lord Mitchell. Although he did not mean it, he gave the impression that somehow the cuddly illegal money lender, the loan shark operating in the pub who threatens to kneecap you if you do not pay up, is somehow preferable. I do not regard the payday loans companies as necessarily preferable, but we have to be conscious that one of the consequences of tightening up on the payday loan market will be that more people will seek recourse to illegal money lenders.
I chair the National Trading Standards Board, and one of the things we fund is the Illegal Money Lending Team for England and the Illegal Money Lending Team for Wales. Those teams are only scratching the surface of the problems that exist around illegal money lenders. They are very nasty individuals who are quite happy to squeeze money out of individuals in perhaps the same way as these corporate entities do—except that they do so using violence and all sorts of intimidation. Some of the cases that have been pursued by the illegal money lending teams are horrifying. Illegal money lenders use their power and strength to intimidate vulnerable people and families, including rape of the women concerned, beatings and other attacks. These are organised criminals who sometimes operate in small groups and sometimes as part of bigger networks. We have to be extremely cautious. When the Government accept these amendments or something similar to them either now or at the Report stage, I hope that they will look at what else needs to be done to protect the public from illegal operators as opposed to the legal ones we are talking about in this group of amendments.
Baroness Drake
My Lords, I support all of the amendments in the group, but I want particularly to speak to Amendment 105P. The mere existence of the payday loans, high-cost consumer credit market is to me a consumer detriment, particularly for vulnerable consumers who access it, but of course that is not an issue which is up for debate under these amendments. The FCA remit is to regulate markets, not to outlaw or to ban these companies. Only the Government can drive the policy needed to secure for not-for-profit affordable lenders sufficient capital liquidity to provide an alternative source of credit. Amendment 105P seeks to address the issue, because notwithstanding the regulation of payday lenders, the need for affordable credit still remains for a particularly vulnerable group of people. As I say, only the Government can drive the policy to address this issue. In the mean time, given that the payday loan market exists, the demand side has certain key characteristics with which we are all familiar. A high proportion of borrowers experience financial distress. Many will come from less well-off socioeconomic groups and will have few assets. A significant number of borrowers will have two or more loans, exposing them to unsustainable and spiralling debt.
Many borrowers get 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, often bringing considerable consumer harm relative to the amounts that were borrowed in the first instance. That is a demographic crying out for intrusion by the Government to create a sustainable market for affordable credit, as these people will still be vulnerable to the need for that credit. Amendment 105P turns its attention to the fact that the standing need for affordable credit for this vulnerable demographic has to be addressed by the Government.
Amendment 105P also captures the argument that the introduction of a broader levy funding base should not be a lost opportunity to significantly expand the availability of a free debt advice service. That is a compelling argument. By comparison, the new pension freedoms and choice agenda due in April 2015 comes with a guaranteed guidance service on the assumption—quite rightly—that the position of pension savers and consumers in the marketplace will be more vulnerable to poor decision-making without such guaranteed guidance. A levy is being raised from among the relevant providers of financial services which is to be dedicated to funding that guaranteed guidance.
No doubt the argument will be made that significant numbers who would benefit do not seek debt advice and that the allocation of funding to a debt advice service has to be proportionate to the demand for such guidance. My response to that is to say that the Government should take the lead in stimulating or creating the demand and the take-up for that debt advice service. I am sure that the proposed pension guarantee guidance would not be deemed a great policy success if few people took advantage of it—even more so with vulnerable people exposed to unsustainable debt and high-cost consumer credit, missing the opportunity to expand the availability and the take-up of a free debt advice service would not be a policy success. Amendment 105 in particular says that we are dealing with a particular manifestation of the need for credit. However, even in addressing the payday loan companies, the systemic problem will still need to be solved: how people can get access to affordable credit and how they can get access to and use a free debt advice service.
I should perhaps declare an interest in that I am a member of the TPAS board which is currently involved in delivering the pension guidance guarantee. Hopefully, that will not detract from the merits of my argument.