High Cost Credit Bill
Debate between Ann McKechin and Damian Hinds
Ann McKechin
I was interested to hear what the hon. Member for East Hampshire (Damian Hinds) said about the rate of interest, but it actually includes the risk of roll-over loans. So if someone does not take out a roll-over loan, they are actually paying more than the market should be charging them. I am very pleased that we have the inquiry by the Competition Commission, and I hope that that is one of the factors it will examine.
Damian Hinds
I think that the economics work the other way round. Lenders make a lot more money on the roll-over loan than on the previous loan, in general.
Ann McKechin
The hon. Gentleman is right, but the lenders build the risk into the interest rate they charge, so that rate is probably higher than it should be. If we controlled roll-overs, we could also control the amount of APR that the lenders then charge.
The inquiry by the regulator found that companies were making up to 50% of their money from customers who extended or rolled over loans, or who incurred late payment charges. That suggests that this market is out of control. It said that borrowers using payday loans have
“poor credit histories, limited access to other forms of credit and/or a pressing need to borrow”.
The Government need to look at the role of our major banks and, in terms of the unsecured credit market, why so few options are available to many borrowers. This is about extending the market options, through not only credit unions, but our high street banks.
Self-regulation, as in the US previously, has not worked. The Citizens Advice survey since the introduction of the good practice customer charter showed that payday lenders are regularly and systematically breaking their own promises; they are still not making adequate affordability checks or giving proper advice if debtors get into difficulties. We need a real-time recording system, paid for by the industry, not by the Government. Such systems already operate in many other international sectors and there is no reason why these self-same companies could not offer to install such a system in this country without delay.
The watchdog has been criticised. The Public Accounts Committee found that it had been “ineffective” and “timid”, and that it has failed to identify risks of malpractice. I spoke recently to someone who has worked in the US high-cost credit sector and he was astonished at the regulator’s lack of concern over recent years. Frankly, this has been perceived as a peripheral problem affecting “little people” who could not cope with their weekly finances. But in the meantime, huge numbers of people have, since the financial crash, seen their household finances severely squeezed. The growth in food banks and in the number of people who are distressed is increasing week on week. At the end of February, outstanding consumer unsecured credit lending in this country stood at £158 billion.
We have failed to invest enough in regulation. We have failed to control this sector properly. This Bill provides us with an opportunity to install proper regulation. I welcome the decision by the Government to move regulation to the Financial Conduct Authority, but that needs to happen sooner and it needs proper direction from Ministers. I am concerned that agencies such as Money Advice Service are still wasting time and money on useless adverts, one of which I watched last night, about mortgage advice—that sector is highly regulated and there is no sign of abuse in it—yet they are not actually tackling vulnerability. The Government cannot abdicate responsibility to a quango; they need to make it clear where those quangos’ priorities lie and that vulnerability has to be central to them.
I hope that the Government will take the opportunity to participate actively in the Bill to make sure that we can start to crack the problem, which is affecting every community in this country.