Consumer Credit and Debt Management

Andrew Bingham Excerpts

Thursday 3rd February 2011 Commons Chamber

[Andrew Bingham (High Peak) (Con)]

I support wholeheartedly the principle of this debate. As the world changes, so does the way we do many things—and none more so than the way we can borrow money. In days gone by, there were usually only two ways of borrowing money—through a bank or, for a mortgage, a building society. Things are very different nowadays.

Anyone who has spent time watching daytime television—I had the misfortune to do so when I was ill several years ago—will be struck by the number of adverts offering quick and easy solutions to money shortages. They are everywhere, whether it be the array of “where there’s blame there’s a claim” law firms offering redress by way of riches, which is something about which I have a strong view—but that might be for another day—cash-for-gold schemes or guided bankruptcy proceedings to escape debts that are already out of control. However, the most prevalent are the offers of loans. Pictures of happy smiling families delighted by the consolidation of their debts under increasing finance are rife. Loan companies with their own television channels promise untold happiness if a person calls them to borrow more and more money. Indeed, some adverts only just stop short of saying, “You can now borrow enough money to get completely out of debt.”

The latest method of debt marketing is the provision of payday loans, lending money at over 1,000%, and companies offering this type of loan are flourishing—they are everywhere. As the motion states, £7.5 billion was lent to low and middle income earners in 2008 alone. It is easy-to-obtain credit, but is frighteningly expensive to service the debt. These company names are becoming as familiar as the old banks and building societies, as they appear not just on televisions but on premier league football shirts, advertising hoardings up and down the country and in various newspapers. I am sure that we have all received many e-mails offering us loans.

I trust, Mr Deputy Speaker, that you will be unlikely to need a payday loan, but if you did and you did a Google search for UK payday loans, your search would yield some 9.8 million hits. If you wished to spare yourself the inconvenience of a credit check, you would still have almost 2 million hits from which to choose.

“Neither a borrower nor a lender be” was, in days gone by, an idealist maxim, but most of us incur debt in some form or another over our lives. At this point, I will resist chiding Labour over its policies on national debt. The ability to repay should be the first consideration for anyone entering into any credit agreement. For the man in the street, however, that is becoming harder and harder to do as the lending methods become ever more varied and complicated. Working out exactly how much has to be paid back on any loan is becoming more and more difficult, as is being able to compare it with other offers.

[Karl Turner (Kingston upon Hull East) (Lab)]

I agree with an awful lot of what the hon. Gentleman is saying, but I wonder whether he shares my concern at the Government’s scrapping of the financial inclusion fund. Around 50% of the advice that my citizens advice bureau gives is on debt management, and it tells me that that will stop as a direct result of the Government’s policy.

[Andrew Bingham]

I thank the hon. Gentleman for his intervention, but I think that we are trying to get some cross-party agreement here. Can we try to deal with the issue of debt and work together on this instead of indulging in political arguments?

I would like to talk about financial education in schools, which my hon. Friend the Member for North Swindon (Justin Tomlinson) has also mentioned. A good education teaches children about the past and prepares them for their future. In a world where debt has become vital to so many important milestones in life, it is right that we should help our children to understand how to budget and how to negotiate their way around credit agreements. I was at the launch event for the all-party parliamentary group on financial education for young people, and I would like to pay tribute to those who set it up. A huge number of MPs were present. Teaching financial matters in schools could be the saviour of many people in years to come, but it will not help adults today. At the launch of the all-party group, Martin Lewis of moneysavingexpert.com spoke with eloquence and passion about his concern at the mountain of debt that people are accumulating, unaware of the consequences of their actions and with little or no comprehension of their total debt liability. Mr Lewis’s concerns are supported by a constituent of mine in the High Peak, who wrote to me about a loan that he took out eight years ago. After eight years of making all payments in full without a single default, he has still not paid back a penny of the principal sum. Indeed, to discharge the loan after eight years, he still had to pay more than 100% of the original amount that he borrowed.

I am not an advocate of legislating at every opportunity. I believe that, through education, we can help people to make informed choices. I support the amendment urging regulators to consider putting in place certain regulatory powers, which would give them the chance to act. However, we too might eventually have to consider taking action against those lenders who operate in a way that is unfair and exploitative, and who offer seductive products in a way that does not explain their consequences for those who sign up to them. A requirement to publish a total lending cost figure for each loan, which could be used as a yardstick by which a lender’s offer can be judged, is in my view a sensible step. In that way, the high-cost credit lenders would flounder because the market would send them down, and the sensible, sustainable methods of credit and the people who offer them would survive, for the good of all.