Debt Advice (FCA Levy)

Ann McKechin Excerpts

Tuesday 21st January 2014 Westminster Hall

[Ann McKechin (Glasgow North) (Lab)]

In the consensual and time-disciplined way in which other hon. Members have spoken this morning, I simply want to support my friend the hon. Member for Worcester (Mr Walker) in his call for the FCA to consider ring-fencing the levy. As other colleagues have mentioned, the need for increased debt advice is clear, because personal debt in this country is increasing and bringing with it increasingly complex problems. I share the concerns expressed by my hon. Friend the Member for Makerfield (Yvonne Fovargue) and the hon. Member for Worcester about the lack of debate between the FCA and the Money Advice Service about the demand for advice services and how best to use the additional funding, which I very much support, from payday lenders. I think it was the hon. Member for East Hampshire (Damian Hinds) who said, correctly, that for the welfare rights officers, citizens advice bureaux and StepChange, other funding avenues are becoming much more restricted.

My constituency benefits enormously from the work of the Maryhill citizens advice bureau, as well as from experienced welfare rights officers in our housing associations. Housing associations are also finding restrictions in their budget—the bedroom tax is having a direct impact, and arrears have increased—but the demand for their services is becoming ever greater. Last summer, I conducted some research in my constituency on a range of issues. A CAB worker there told me the following:

“Huge, huge changes have occurred as a result of the welfare reforms. We have much more cases where we have to help clients with appeals on benefit sanctions and ESA. There are many more people coming in angered, frustrated and desperate because of this. This puts a lot of strain on us. Furthermore a lot of people are coming in confused about how the new system works, including ourselves!

There is a big problem with sanctions from the job centre. They are being much tougher on families. More people are coming in with mental health issues—depression being a major one—caused by debt, unemployment and the stress of things like benefit sanctions.

There has also been a large increase in exploitative employers in this area…the rise in zero hour contracts.

Clients are coming in with more complex problems. All sorts of issues—and they’re all intertwined. We (the CAB) are definitely going to be facing much more problems in the near future with the changes to universal credit and it all going online.”

That fact is that debt is not the only issue that advisers are dealing with on the ground in our communities. They are having to deal with huge changes in the welfare system, the increase of insecure work—we discussed that in the debate last night, Mr Hollobone—and the increasing use of high-cost credit. All those are interlinked together. Basic training for a Citizens Advice volunteer takes 10 weeks—it is an intensive course. The people who have been working as welfare rights officers in my area have been doing so for many years. We benefit from their high level of experience, but it does not come cheap. We must train more people in the years ahead to be able to meet the demand, which is coming from a much wider range of our population.

I was interested to hear the hon. Members for North Swindon (Justin Tomlinson) and for East Hampshire talking about a range of people who had secure jobs but were now having great difficulty trying to manage their finances. The demand spans from people like that down to those in my constituency, where in some areas people are living on very reduced incomes and always have been. They are now finding their income even more stretched, and real incomes have declined significantly.

The need is utterly apparent. I hope that the FCA and the MAS will respond positively to this debate, and that when the Minister responds he will be a friend in persuading those institutions of the need to reconsider how they are going to use the levy in future.

--- Later in debate ---

[Cathy Jamieson]

Again, the hon. Gentleman makes a valid point. It reminds me of a previous career, when I was in another Parliament and worked closely with the predecessor of my hon. Friend the Member for Makerfield on tackling some of the illegal loan sharks and trying to ensure that they were brought to justice.

Of course, it is important that we consider everything we can do to establish the principle—I think it was referred to as “the polluter pays” principle—whereby the people who cause the problem have a social responsibility and, in this context, a financial responsibility to provide some of the funding to pay for the resources we need to tackle the problem.

My hon. Friend the Member for Glasgow North (Ann McKechin) asked if there has been a lack of discussion between MAS and the FCA. Again, I hope that the Minister can enlighten us on that issue, perhaps giving us some more information about the involvement of the two organisations. Also, can he say whether or not he can ensure at this crucial stage that all the organisations are brought together for further discussion? I am almost hesitant to say this again, but, as I have already said, there is sometimes a danger that people involved on the Treasury side would perhaps look in isolation at this issue; they would look at the money flows, the funding streams and so on, without necessarily looking at the people involved. In this context, it is very important to look at the people involved.

[Ann McKechin]

Does my hon. Friend agree that because the FCA is such a massive organisation—in terms of its scale and what it is intended to cover—compared with MAS and because it is just getting off the ground, trying to set some parameters for what the FCA and other organisations need to consider is an important part of the Treasury’s function?

[Cathy Jamieson]

Again, my hon. Friend makes a valuable point. In bringing my remarks to a conclusion, I want to reiterate some of the points that were made in the debate in the main Chamber last night. As she said, the FCA is a new organisation and it has been given a wide-ranging remit. It has consulted on a number of issues and new rules will be introduced for a range of things, but I would not like to see the specific issue of the levy slip through the net. My hon. Friend the Member for West Bromwich West referred to the recommendation for a levy in the Business, Innovation and Skills Committee report as the recommendation that has almost gone “under the radar”. Hopefully it is no longer “under the radar”; as I say, I certainly do not want it to slip through the net because of the FCA’s wide range of responsibilities.

The Minister, who has been listening intently, will have heard the view expressed in both debates on this subject—last night and today—that there is a genuine consensus across the House on this issue, and hopefully people from the FCA and MAS have heard that too. There may be other areas where we would disagree, but there has been a genuine consensus on this issue, which has built up during months, if not years, of campaigning by individuals who have been very committed to tackling this problem and by organisations that have been absolutely at the sharp end and see it every day. Those individuals and organisations have the ideas both to deal with the problems when they are identified and—crucially—to put in place preventive measures. There was some discussion of those measures last night, which include, for example, action on advertising, education and so on, so that we can try to prevent people getting into debt in the first place. However, if they do get into debt, the correct services must be there for them, not only to point them in a direction to get a bit of information but to help them to work their way out of debt, including making some of the lifestyle changes that are perhaps associated with getting out of debt.

--- Later in debate ---

[The Financial Secretary to the Treasury (Sajid Javid)]

I welcome you to the Chair, Mr Hollobone; it is always a pleasure to serve under your chairmanship. I congratulate my hon. Friends the Members for Worcester (Mr Walker) and for East Hampshire (Damian Hinds) on securing the debate. I listened carefully to them and the other hon. Members who contributed, and I thank all hon. Members for their contributions. I think that I am right in saying that each of them contributed to yesterday’s important debate on the payday lending sector in general. Once again, they shared thoughtful and well-balanced comments.

The Government believe that consumers should have access to free, independent money and debt advice. The Money Advice Service has the important job of ensuring that consumers get that advice. The Government want to empower consumers to manage their money well and to make responsible financial decisions, which is where MAS’s money advice role comes in. However, as we have heard, for consumers facing difficulties with debts, the first step in getting those debts under control is debt advice, and MAS also has a role to play in that regard. Money advice can help consumers to keep on top of their finances and stop them getting into problems in the first place.

Let me say something about payday lending generally, because it is connected to consumer detriment issues, which we heard about both yesterday and today. As well as giving MAS responsibility for ensuring that consumers have access to debt advice, the Government are tackling the root causes of spiralling debt. We are fundamentally reforming the regulatory system that governs lenders and we are, in particular, clamping down on payday lenders.

The Financial Conduct Authority takes on its consumer credit responsibilities from the Office of Fair Trading in April. The FCA will have far stronger powers over lenders than the OFT has, and it will be more nimble, meaning it is able to keep pace with a fast-moving market. The FCA is already flexing its regulatory muscle in advance of taking on regulatory responsibility for high street lenders. It plans to cap roll-overs, hold payday lenders to account on affordability assessments, curb the misuse of continuous payment authorities, and mandate risk warnings on payday lending adverts that signpost borrowers to the advice and help that MAS can provide.

The Government have taken decisive action to tackle the harm caused by the cost of payday loans. In the Financial Services (Banking Reform) Act 2013, we gave the FCA a clear mandate and duty to put a cap on the cost of payday loans by the beginning of 2015. This is not just an interest rate cap, but a cap on all fees and charges associated with a payday loan including, of course, default charges and roll-overs.

As we have heard—I agree with hon. Members about this—the provision of debt advice is vital. Free debt advice is currently funded by a levy on financial services lenders, which stand to benefit from advice that helps borrowers to get back on their feet and in control of their borrowing again. Once the responsibility for consumer credit transfers to the FCA, it is absolutely right that the levy begins to apply to consumer credit firms including, of course, payday lenders.

I welcome the focus of my hon. Friend the Member for Worcester and the Business, Innovation and Skills Committee on this issue. We all agree that payday lenders must pay their fair share towards the provision of advice. However, although I listened carefully to points made by my hon. Friend and other hon. Members, I am not yet persuaded that the levy collected from payday lenders should be ring-fenced for debt advice only and used to top up funding for front-line debt advice, and I shall now explain why.

We should not consider debt advice separately from money advice. The two go hand in hand to help consumers to get back in control and to give them budgeting skills and financial awareness to help them to stay out of problem debt, which is crucial, as my hon. Friend the Member for Gosport (Caroline Dinenage)said. We also should not forget that money advice can be vital in helping those on the brink of taking out a payday loan. It can help them to understand what they are getting into, how to borrow responsibly, how to find out whether there are better and cheaper options available, and whether they should be turning to payday loans at all. As money advice could help to stop people from getting into trouble with payday loans in the first place, it is right that payday lenders contribute to funding free money advice and debt advice services. The Money Advice Service has a statutory objective to provide money advice and debt advice.

[Ann McKechin]

I have listened carefully to what the Minister has said about money advice. The Money Advice Service primarily uses a website to provide access to money advice. In Glasgow, less than 30% of those on the lowest incomes have broadband access in their house, so the people who need advice the most are the least able to access it. It is not just about giving money advice; it is about how that is delivered. I have to say that, in my experience, it is poorly delivered.

[Sajid Javid]

I listened carefully to what the hon. Lady said, and others have also made that point. When I visited MAS’s office in London last week, I looked much more closely at how it provides money advice. The hon. Lady is right to say that it relies considerably on a website, but it is more than just a website—there are individuals involved. I listened to a lengthy recorded call that was an example of how people who wanted money advice before entering into a financial transaction could be guided through the process. I saw for myself how that was adding value. Although that was obviously a phone call and not face-to-face advice, it was more than just web advice. The hon. Lady highlights the importance of MAS continuing to consider how it can continue to improve its service and ensure that it is providing appropriate advice.