Financial Services Bill

Lord Kennedy of Southwark Excerpts

Wednesday 24th October 2012 Lords Chamber

[Baroness Kramer]

My Lords, I will speak very briefly to this amendment, with which I have great sympathy.

I understand that the Government are carrying out a review of payday lending. I have two concerns. First, we really need to nail the banks, frankly, because I suspect that if the various fees charged for unauthorised overdrafts were translated into an APR, they might not be so different from that charged by Wonga. Secondly, we need to understand this dynamic between companies like Wonga and the kind of loan sharks that come after their clients with a baseball bat, because the last thing any of us want would be to see people driven back to those illegal lenders and subject to their violent and aggressive behaviour.

Would the noble Lord, Lord Mitchell, not agree that the most important way to combat this kind of exorbitant charging is to make sure that there is a proper alternative for individuals, whether it is through a credit union, community development banks—which we do not have this in this country—or some other mechanism where there is a legitimate provider that serves this particular market? Would he not agree that one of the frustrations with much of the language in this Financial Services Bill is that it is not taking the necessary actions to promote those kinds of organisations coming forward and to provide regulator backing to ensure that the alternatives are in place so that people do not have to resort to Wonga or to banks charging exorbitant fees for unauthorised overdrafts?

[Lord Kennedy of Southwark]

My Lords, I thank my noble friend Lord Mitchell for his very welcome amendment. The time has come to deal with this issue. All of us, I am sure, are greatly concerned that those in poverty or on a low income, with a poor credit rating, actually pay the most for financial services—those who can least afford it pay the most, and that is wrong.

Like the noble Lord, Lord Mitchell, I think it is outrageous that people pay 2,000%, 3,000% or 4,000% for credit. It is a great concern to me that on the streets of Walthamstow and Southwark, where I come from, you see these payday loan companies offering these services. If you are at home watching daytime television, you are bombarded with them then and at other times. It is outrageous. The Government should look to create an environment that enables people to pay a fair price for the credit they need. The noble Baroness, Lady Kramer, spoke about the credit union movement. I am a big supporter of it as well and it certainly has a role to play in finding part of the solution to this problem. The Government have got to help it. I know it had some welcome support from the Government, with £38 million from the development fund. That is great, but it needs additional support to enable it to offer some of the services discussed here today. It may also be time for the banks to do something. We often talk about the problems we have had with the banks in recent years. They could earn some credit by working to help people in this sector. These are often the people the banks do not want to lend money to. They all have charitable arms and trusts, though, so why can they not work to help those whose business the banks would not otherwise want, to access credit elsewhere? The banks should step up to the mark and look at this.

As my noble friend said in introducing this amendment, there is no attempt to stop these firms trading, but it gives power to the FCA to set the interest rate they charge. That is very welcome. My noble friend also said that the cost is displayed as an annualised rate, but it is so small, it is hard to read. What should happen is that the print is like that on a packet of cigarettes, with a great big sign saying what it costs. We should see it clearly so that if we borrow £1,000 or £2,000, we know without dispute what we are actually paying. I am delighted to support my noble friend and look forward to the response of the Government.

[Lord Flight]

My Lords, I shall make two brief points. First, when I started my career there was a money-lending licence. You could not be in the business unless you had one and if you did, the interest rate that you could charge was limited by law. Secondly, wearing my hat as a commissioner of the Guernsey Financial Services Commission, Guernsey has refused to allow such companies to register or operate within the States of Guernsey.