Consumer Credit

Baroness Wilcox Excerpts

Thursday 3rd February 2011 Lords Chamber

[Lord Kennedy of Southwark]

To ask Her Majesty’s Government what assessment they have made of the interest charged by loan and credit companies.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)]

My Lords, the Government are looking at a number of additional protections for consumers in the credit market through the consumer credit and personal insolvency review, which is now going on. The review is headed up by the Department for Business, Innovation and Skills, which includes consumer affairs, and the Treasury. We are currently considering the evidence submitted in support of the review.

[Lord Kennedy of Southwark]

I thank the Minister for her reply. Does she agree that it is just wrong for some of the poorest and most vulnerable people in our society to pay interest rates of up to 3,000 per cent for credit? Does she further agree that the Government need to actively support the growth of the credit union sector and to support the link-up with the Post Office, and thereby give people access to an affordable, wide range of credit to meet their needs in their high street?

[Baroness Wilcox]

Yes, my Lords, of course I agree. The Government are aware of concerns about the high-cost credit market and suggestions that there should be a cap on high-cost credit products. We have been here before. There have been three reviews, from when the Opposition were in government and when we were in government before—we have reviewed this over and over again. The first time was 15 years ago, when I chaired the National Consumer Council. We are worried that people would go to illegal loan sharks to borrow money if there were capping. On the second part of the noble Lord’s question, we are doing everything we can to reinforce the link-up between the Post Office and the credit unions. It is a marvellous system and I hope to see it flourish.

[Lord Marlesford]

My Lords, are the Government concerned at all that at the present time there is some £60 billion of credit card debt, on which some £9 billion a year of interest has to be paid, and that a large number of the debtors of this credit card debt are unable to pay the interest? Do the Government recognise that this probably represents a substantial reservoir of toxic debt held by the banks of this country?

[Baroness Wilcox]

My Lords, there are enormous worries surrounding such debt. This is why the consumer credit and personal insolvency review is taking place. I am sure that the review would be open to hearing any evidence that the noble Lord might like to give. However, we cannot answer any questions now, until just before the Budget, so that will be in about April.

[Baroness Coussins]

Is the Minister aware of the independent research by Nottingham University, which forecasts that an extra 200,000 people will need help with their debts this year? Given the end of the Financial Inclusion Fund, and the reports that we have heard just this morning about the cuts to Citizens Advice, what help can the Government provide to ensure that the most vulnerable people get help and are kept out of the hands of loan sharks? I declare an interest as the president of the Money Advice Trust charity.

[Baroness Wilcox]

This Government, like the previous Government, are constantly trying to find ways to help people get the best possible information to make sure that the decisions they make lead to debts that they can fulfil. It is very difficult. This is why another review is taking place. We are looking yet again to see what we can do so that people do not have to go to loan sharks. However, I am worried about putting a cap on any of the very, very high interest rate products. At least we know that when people get into trouble they can come to us for help. Countries such as Germany and France capped at 25 per cent years ago. The problem is that there is no access for the very poorest people who need to borrow. It is important that they have access to some facility.

[Lord Sugar]

My Lords, the noble Baroness and I have spoken about this subject once before across the Floor and I reiterate my question about the misleading advertising by credit card companies and loan organisations. It is about time that the Advertising Standards Authority imposed strict regulations about the prominence of warnings in respect of interest payable in those adverts so that they are approximately the same size as the headlines trying to lure the consumers in. Will the Minister, once and for all, take this matter up with the Advertising Standards Authority?

[Baroness Wilcox]

If the Advertising Standards Authority was answering instead of me, it would say that it is complying with everything it should be doing. However, the question the noble Lord, Lord Sugar, asks demonstrates that there is continuing concern about this. I will of course take this on board and reflect again upon what the noble Lord has said and see if there is anything I can do to help things along.

[Lord Razzall]

Is the Minister aware that this issue is being debated today in another place on a Motion tabled by the Labour Party? Is she also aware that the proposal in that Motion is that a total-cost-of-credit cap should be imposed? Would she agree that, on the basis of the consultation that the previous Government undertook, that would not protect the vulnerable in the way being suggested in another place?

[Baroness Wilcox]

I am aware of the debate this afternoon in another place and shall be interested to hear what comes out of it. I am interested in what the noble Lord said, but for the moment I cannot comment because the review is not out.

[Lord Elystan-Morgan]

While I appreciate the efforts made by Her Majesty's Government in relation to credit unions, does the Minister not agree that the scale has to be upped very considerably? In the Republic of Ireland, 50 per cent of personal credit is through credit unions. In Canada and Australia, the figure is roughly 20 per cent, but in this country it is only 0.5 per cent.

[Baroness Wilcox]

We have tried for years to interest the British and Northern Irish public in credit unions. It is just something that we never seem to have got the general public to sign up to. I know that in Canada and Germany credit unions are regarded as a wonderful idea, and so they are. You put your money in and can take a little bit out. It is a very simple system. In fact, I think one of the most successful credit unions in London at the moment is the black cab credit union. It does not take more than 12 people to get together to form one. It may be that this is a good advertisement, yet again, for credit unions.