Consumer Rights Bill

Debate between Lord Alton of Liverpool and Lord Mitchell

Wednesday 26th November 2014 Lords Chamber

[Lord Alton of Liverpool]

It is certainly true that it could appear in an instrument or regulations. However, subsection (1) of the proposed new clause refers to the content as well as the timing with regard to people below the age of 18. What that part of the amendment recognises is that some young people are bound to be watching television after the watershed and that would certainly need to be addressed.

Payday loan advertising is a significant factor which contributes to the social context in which people make their financial decisions. People are endlessly blitzed by messages encouraging them to spend and to borrow, whereas there is minimal knowledge about money advice and debt help services. Our failure to develop a nationwide network of credit unions has always been a major disappointment to me and a contributory factor to the ability of these payday loan lenders to walk into that space.

With the prevalence of payday loan advertising increasing by more than 20 times from 2009 to 2012, according to Ofcom research published in December 2013, far outstripping the advertising of sound financial management or general financial education—although there is commendable and wonderful work, as the right reverend Prelate referred to, by organisations such as Christians Against Poverty, StepChange, the Children’s Society and CARE—it is hardly surprising that payday loans are increasingly being seen as a normal and responsible means of personal financial organisation. What today’s children see, hear and understand from what they are taught today, and from the advertisements that they see, will impact hugely on their future.

What is particularly concerning about the normalisation of payday loans as a means of borrowing is that it particularly manifests itself among young people, specifically, in younger parents. According to Playday not Payday, a report produced earlier this year by the Children’s Society, 39% of parents aged 18 to 24 are likely to have used payday loans at some point, compared to 18% of 25 to 34 year-olds and just 8% of 35 to 44 year-old parents. It is interesting that the same report concluded that 30% of 18 to 24 year-old parents describe payday loans as an acceptable means of managing day-to-day expenses. Perhaps we can take some encouragement in that 9% of 18 to 24 year-old parents recognise that although they have used payday loans, they do not see them as an acceptable means of managing day-to-day expenses—but that is scant encouragement.

This week, Ofcom, the regulator and competition authority for the United Kingdom’s communications industry, published results concerning children from its Digital Day 2014 research. The study found that just over three-quarters—78%—of children aged 11 to 15 and 90% of six to 11 year-olds watched live TV every day over the course of a week. With so many children consuming so much television, it is important that we ensure that they consume what is appropriate.

In our earlier debates on the Bill it was said that there is a logical inconsistency in the current approach to the advertising of payday loans. I agree with that. We properly accept certain limitations on advertising, even in a free-market economy, where it is recognised that normalising potentially harmful behaviours should be avoided, as is the case, for example, with alcohol or gambling advertisements. Payday loans should be treated in the same way. I have yet to hear a cogent argument against that.

Critics of closing the loophole note that payday loan advertising is not targeted at children and that restricting adverts until after the 9 pm watershed—the point made by the noble Lord, Lord Higgins, earlier on—is therefore unnecessary. I must say that I find that argument unconvincing, although I note that the noble Lord is not one of those who advance it. An advert can appeal to someone without being targeted at them. Although payday loans may not be advertised specifically around children’s programming, children do not only see programmes designed for them. They see a range of content.

In a poll conducted by YouGov and commissioned by the Children’s Society, 74% of parents across the country backed a ban on payday loan adverts from airing on TV and radio before the 9 pm watershed. We should listen to them. Parents also tell us that they feel under pressure from their children with regard to payday loans. Research conducted by the award-winning MoneySavingExpert.com website revealed that more than one in three parents with children under the age of 10 have heard their children repeat slogans from payday loan TV advertisements. In the same poll, 14% of parents said that when they refused to purchase something for their under-10 year-olds, they were nagged to take out a payday loan for it. All of us who have children know all too well the almost irresistible gut-wrenching pull of the plea of a child—especially on a sleep-deprived parent. We may reminisce with rose-tinted spectacles about this now, but the reality is that for some families this is what is called “pester power”. It is the beginning of a slippery slope, often towards indebtedness and poverty.

If there are steps we can take to avoid families slipping unnoticed into indebtedness, we must surely take them. These amendments do not represent a magic bullet. I do not think that the right reverend Prelate, the noble Lord, Lord Mitchell, or the noble Baroness, Lady Bakewell, would argue that. I accept that there is no single solution or quick fix. Whole-person financial care is vital. Financial education is crucial to prepare children for financial independence. Equipping children and young people to make financially capable choices will also help to break the sort of cycles of deprivation that many of us have seen, especially in urban areas—places like the city of Liverpool, which I represented for 18 years in another place. But preventing seductive, alluring, irresponsible advertisements can also play its part.

These amendments will therefore make a difference. They will ensure that children are less familiar with high-cost consumer credit products such as payday loans. They will ensure that adults are protected from overt pressure in the form of overbearing and intrusive unsolicited marketing. They will help families and insulate children from the subtle pressure and normalisation of payday loans as an appropriate form of financial management.

For all those reasons, I am very happy to support the amendment so ably moved by the right reverend Prelate the Bishop of Birmingham.

[Lord Mitchell (Lab)]

My Lords, two years ago, the payday loan sector in this country was completely unregulated. Payday lenders from around the world opened up in the UK. For them, it was the new frontier: you could get away with anything—and they did. These companies enjoyed very rapid growth, to the extent that Wonga, as just one example, was considering a public listing that would have valued it at more than £1 billion. These people would stop at nothing. Their success, of course, was built upon the misfortune of the millions of people who had no other option but to take out these loans, and of the tens of thousands who suffered, and continue to suffer, acute distress as the value of their loans ratcheted up at 5,000% per annum.

However, things have changed—and very much for the better. It took a superhuman effort, and we encountered a great deal of initial resistance from the Government. But today legislation is in place which has already started to contain the activities of the payday lending companies. In five weeks’ time, the Financial Conduct Authority will introduce interest rate caps that will remove many of the excesses. I congratulate the Financial Conduct Authority for grabbing this bull by the horns, and making life very tough for the cowboys who had reigned supreme. It is estimated by the FCA that in 2015 most of the lending companies will leave the industry and that only four serious payday lending companies will remain in business. It is not often in politics that one can say, “Job well done”. But it is job well done—or at least, nearly done.

This afternoon we are addressing some of the outstanding abuses that the payday lending companies still employ—none more so than the part of their advertising that is targeted at children. Yet again, the government are holding out against legislative action, and yet again they claim that sufficient powers already exist for the FCA, Ofcom and the Advertising Standards Authority to restrict such advertisements; even though there is overwhelming evidence to show that children are influenced, and continue to be influenced, by these advertisements.

In Committee, the noble Baroness, Lady Jolly, made an argument that, in my view, missed the point. She based it on the fact that advertisements are not targeted directly at children. She said that Wonga, as one example, has specific policies not to advertise on children’s TV. I will resist the temptation to comment on the value of any of Wonga’s ethical stands.