High Cost Credit Bill
Debate between Lord Beamish and Lyn Brown
Mr Kevan Jones
Is it not the case that some of the things that the Government are doing, such as the bedroom tax, are driving people to take payday loans? If we followed through the proposals made by Beecroft, who is a major stakeholder in Wonga, there would be more zero-hour contracts and less protection at work for those individuals.
Lyn Brown
I agree with my hon. Friend’s analysis.
Community Links is a valued and well-established charity in my constituency that has worked tirelessly on behalf of disadvantaged communities for more than two decades. Its clients include people who have taken out payday loans as a means of supporting regular family expenditure. Community Links tells me that over the last year or so it has seen a 20% increase in payday loan problems, which its advisers attribute to the ease of access and application. It has given me two examples to share with the House of real everyday problems faced by my constituents.
The first client is a married woman with two school-aged children. The family own their property and are paying off the mortgage. She was in part-time employment, working as an administrative assistant, and her husband had been made redundant, so the family had to manage and struggle on her single wage. She started to take out payday loans in order to clear unexpected bills, but she then began to use the loans as a way of increasing family income.
Although she was highly experienced at juggling the loans, one by one the loan companies started to contact her regarding repayment. When she went to Community Links for advice, she had four payday loans with four different companies—short-term loans with high interest. She had also been using her credit card to pay for family expenditure and the total debt was about £7,000. She tried to negotiate the payments herself, but the companies simply were not interested. She felt threatened by numerous telephone calls, sometimes many on one day, and visits to her home address. Although she is a very competent individual, she became swamped by the loan companies’ demands and sought legal advice as a result. Community Links advisers drafted a financial statement, negotiated with creditors and arranged reasonable payment terms. It also arranged for her mortgage payments to be reduced in order to bring down her expenditure to match her income. The Bill’s proposals on affordability and access should help prevent the build-up of such calamitous debts. If she had not gone to Community Links, or if it had not had the staff to help her, I shudder to think what would have happened to her and her family. It would have meant default on the mortgage and homelessness. She would then have had no choice but to apply for housing benefit and would have had found herself, as is often the case in London, in substandard, expensive private rented accommodation. All this would have been at a cost to the taxpayer and would have been avoidable with the proper regulation of loan companies.
I am afraid that this case also highlights the crucial role of debt advice in starting to resolve people’s problems. Community Links tells me that it has lost all legal aid funding for welfare benefits and debt advice as a result of Government cuts, amounting to more than 700 cases a year, each of which would be more likely to lead to ongoing costs for the taxpayer, rather than individual, one-off payments and interventions.
Community Links also tells me that the loss of funding for advice services means that struggling families are finding it much harder to access support when they need it and are getting deeper into crisis. The solutions—eviction and homelessness—cost the taxpayer money and we must not forget that.
I welcome the Bill’s provision that lenders should signpost customers to free, impartial advice when they are turned down or miss a payment. I also welcome the potential levy on lenders, specifically to pay for additional debt advice through the Money Advice Service. I hope that the Financial Conduct Authority takes note of that when it assumes responsibility for the sector in April 2014.