Payday Loan Companies

Andrew Percy Excerpts

Monday 20th January 2014 Commons Chamber

[Justin Tomlinson]

I thank my hon. Friend for that contribution. If she can just be patient, I will be heaping huge amounts of praise on her shortly.

The second thing I would like to see is real-time credit checking. The industry wants that because, despite a lot of the rumours, it relies on people being able to pay back the money they have borrowed. It would help to avoid somebody going into one shop and 15 minutes later going into another one. The credit checking agencies follow the traditional monthly banking system, so in theory somebody can wreak damage on themselves in the course of a month before the banks catch up. The industry says that it wants real-time credit checking; the credit agencies say they would like to offer it but that it is very complicated. One of the smaller operators, Call Credit, has got 10 operators signed up, but it will not be 100% participation. The Government will therefore have to empower the FCA to demand this. We are getting close to it, and it exists in some forms in America. It will make a huge difference because it will protect people from taking out multi-loans and allow the FCA to enforce affordability checks so that lenders who are lending to people who cannot afford it can be dealt with.

I would like to go one step further in ensuring that people can rebuild their credit rating. When someone has been turned down for a loan by one of the mainstream banks, the payday lending industry is often the only one that is prepared to take the risk with them. If they pay back the loan properly and on time, they should then have their credit rating repaired, allowing them to re-enter mainstream traditional lending.

There is a perception that the products, prices and requirements placed on people pushed them away from mainstream banking into a more modern, innovative industry that was responding to the situation. Mainstream banking has to take a long look at itself to see how it can adapt to a changing world. I fully support the fantastic work that my hon. Friend the Member for East Hampshire (Damian Hinds) has done on credit unions as an alternative for people. It might not be the total solution but it is certainly a very important part of the process.

On debt advice, which will be debated tomorrow in Westminster Hall, I fully support the levy, and I think the industry does as well. The Nationwide building society carried out a survey showing that 91% of people who get into financial difficulty say, “If only I had known better.” We see this in our casework. People who have got into difficulty come to see us with their carrier bags of unopened envelopes, and they need face-to-face, patient help. At the point where they go to get one of these loans, it would be helpful to have well-advertised information about how they can access free, independent debt advice, with a freephone telephone number.

Under the licence to operate, it costs lenders about £2,000 to get set up. A particularly bad, unscrupulous lender can wreak all sorts of damage before the FCA, or formerly the OFT, will have had time to do something about them. Unfortunately, some of these operators on the very fringes of the market will take advantage of the potential two-year window to do whatever they want before being taken down, and will then spend more money to get themselves back up the Google search engine listings.

The FCA needs to be extremely proactive in terms of mystery shoppers. Often the consumers who get themselves into the most difficulty are vulnerable people who are least equipped to raise it with us so that we can chase things up. This particularly applies to doorstep lending, as I have said in previous debates. With that lending model, the lender befriends someone, gains their trust, goes into their house every month, and could encourage them to borrow more. They might say over a cup of tea, “Have you sorted out your Christmas presents? If not, don’t worry, because we could provide the money for that, and why don’t you get your carpet sorted out if you’ve got your family coming round—that’s only another £3 a week.” We need to have mystery shoppers to check that the operators are sticking to the rules.

I championed the desire to get financial education on to the statute book, and I am delighted that the Government are implementing that in 2014. As my hon. Friend the Member for East Hampshire said, things will now change. This is about equipping the next generation of consumers with the skills to be able to make informed decisions—not moralising on those decisions but enabling them to make the mathematical calculations.

[Andrew Percy (Brigg and Goole) (Con)]

My hon. Friend is absolutely right to mention financial education. It is good that we have got that on to the curriculum, and it was a good campaign, but we also need to make sure that it is covered in teacher training. I used to be a teacher, and I would be the last person to give advice on financial literacy, as people will know from my previous speeches. We have to make sure that teachers are trained properly in how to deliver this.

[Justin Tomlinson]

My hon. Friend is absolutely spot on. From his experience as, I am sure, a wonderful teacher, additional training would make a real difference. It is important that the Government tie that in with the national curriculum to be introduced in September.

My hon. Friend the Member for Gosport (Caroline Dinenage) was also spot on about adult literacy. We cannot just wait for future generations to filter through; people are making bad decisions now because they simply do not have the capabilities to do anything else.

As a country, we need to encourage a savings culture. I sometimes worry that we all—we are all as bad as each other—want everything tomorrow, but it is sometimes not such a bad thing to wait.

The cost of credit is being looked at, and we are absolutely right to consider the total cost. We should look not just at the crude APR measurement, but at the fees, the cost of roll-overs and things such as bank overdrafts. Some of the charges I have seen equate to about 80,000% APR. The hon. Member for Makerfield (Yvonne Fovargue) made some good points about fees and roll-overs, and we should continue to push on those matters.

Finally, we just have to recognise the need to be flexible. The industry will continue to change: when we started to look at limiting roll-overs of loans, it began to extend loans. The market will keep changing, so we have to be quick on our feet.

--- Later in debate ---

[Andrew Percy (Brigg and Goole) (Con)]

This has been an interesting and largely consensual debate. The only comment I bristled at was that by the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) linking the rise in living standards to the emergence of the Labour party. As a former history teacher, I thought it had something to do with the industrial revolution as well—next he will be claiming credit for the power shift to the workers after the black death. Apart from that, it has been a generally consensual debate. Regarding solutions, I think we all agree on the general direction of travel and have all been receptive to the Government’s proposals, although some of us would perhaps like them to go a bit further.

I shall focus on some of the reasons for the rise in payday loans and then look at one solution that others have touched on, which is education. Members on both sides of the House have tried to explain the reasons for the explosion in payday lending, but in reality it happened at the same time as a reasonable explosion in living standards, so it is not simply about the economic downturn or people finding themselves in a more difficult position economically; culturally, something deeper is going on.

Members have talked about the “we want things today” culture. My grandparents never had any debt in their entire lives; they saved for everything and they tried to embed that idea in their grandchildren. It failed spectacularly in my case—I listened to them on many things, but clearly not on debt. Something deep has changed in society. As my hon. Friend the Member for North Swindon (Justin Tomlinson) said, we want things immediately—at three o’clock in the morning, if the money is not quite there but someone can click on a payday lending website, that is unfortunately what too many people do.

The high streets in my constituency, particularly in Goole, have seen an explosion in the number of these shops and services. I have to say I bristle when I walk down the high street. The high street should be a place for visiting the butcher, the baker and the candlestick maker—there is still one of those not too far from my constituency. That is how we think of our high streets, but regrettably they are today overpopulated with betting shops and payday loan companies. I probably have more complaints in my constituency office about the behaviour of the banks than about individual payday lenders, but that does not mean there is not a problem—we should not mention banks in anybody’s defence.

Obviously there has been an explosion in personal debt, and that is a deeply engrained cultural thing. The solutions spoken about this evening are to be welcomed, but they deal with the symptoms, not the causes. As my hon. Friend the Member for North Swindon and others have alluded to, education is key—and not just in schools. I was happy and proud to chair the inquiry by the all-party group on financial education for young people into financial education. We welcome the fact that the Government have taken that report on board—it is a good start—but much more still needs to be done, because far too many people simply do not understand how to handle debt, what it is, how to work out how much they will have to pay or the impact on their life.

I have spoken before about the debt troubles I got into when I was a teenager and in my early 20s, funding my way through university. I bristle when I am told on Twitter, “You’re a millionaire Tory MP who doesn’t understand real life.” That happens too often, but it was not the case with me; I struggled with high levels of debt that I am still dealing with. I am lucky: I am a Member of Parliament with a reasonable salary, and I can get to grips with it. I did not realise at the time, however, that I would be one of those who might struggle—the hon. Member for Makerfield (Yvonne Fovargue) talked about this. I did not realise that it had to be paid back and that the interest would be huge. The minimum payments are often less than the interest accrual every month. Until we crack that, we will not get anywhere, whatever caps on lending, roll-over caps or whatever else we introduce. Until we get to the bottom not just of how to work this into the curriculum, but of how to demonstrate the impact of this problem on people’s lives in the longer term, we will not make real progress.

I am still dealing with the debt issues I encountered in getting myself through university. I am lucky, as I said, but others will be condemned by their debt for very many years. This is largely because of the failure to understand that while some debt is good—the Select Committee talks about mortgages, home ownership and so forth, perhaps as necessary evils—much debt is truly evil and life changing for so many people. Until we crack that problem through education, I do not think that any of the other solutions will do a great deal, welcome though they are. Financial education in schools is a good start, but we need to address the adult population if we want to make a real change. We face a great problem with financial illiteracy in our adult population. I know that my hon. Friend the Member for Worcester (Mr Walker) is passionate about that issue and he spoke about it.

I welcome the interesting debate we have had and some of the solutions put forward, but as I have said, without cracking the financial illiteracy that is so evident in this country, I think that everything else will be but a drop in the ocean.