Baroness Burt of Solihull
Main Page: Baroness Burt of Solihull (Liberal Democrat - Life peer)Consumer Credit and Debt Management
Baroness Burt of Solihull Excerpts(13 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text
Stella Creasy
The hon. Gentleman makes a good case for regulation, which is what the motion would introduce. However, it would be considered regulation that takes account of the market and of how it affects consumers. That is why I have confidence that the proposals would be effective if they were taken forward by the Government.
Markets change and the motion is about being responsive to that. It takes into account how consumers and lenders interact with the market. It draws its effectiveness from an evidence-based process. It is regulation at its best and boldest. Crucially, the proposals overcome the problems associated with previous proposals, which calculated the interest rate. Instead, the total cost of credit would be considered. That difference makes all the difference.
There is strong evidence from countries with caps that lenders have tried to avoid them or to compensate for their profit loss by applying higher charges. In Poland, following the introduction of caps, lenders introduced a mysterious convenience fee to make up the difference. The European Commission report shows that there is support—although not from providers, of course—for capping all the costs associated with loans to tackle such behaviour across the sector. The key to that measure will be how the caps are calculated. We have proposed that they should be annualised for ease of comparison and based on the total cost of the loan, rather than the interest rate alone. Calculating on the total cost makes it clearer to consumers what they will actually pay. There would be no small print and no nasty surprises that undermine people’s attempts to budget for repayments.
The motion is deliberately open about who would regulate. That is because changes have been proposed that would involve a number of bodies in the process, including the Office of Fair Trading and Consumer Focus. The Members who tabled the motion are open on how the regulatory process should be taken forward, but we want it to be taken forward.
The regulator would work with all stakeholders in the industry, including the lenders. I know that the industry is frightened by the proposals because of the amount of spin that they have sent to hon. Members. That is a pity because if they had been involved, we could have learned from their experience in considering the appropriate levels of capping. Their churlish opposition to any form of price capping and their attempts to conflate concern about interest rate caps with this matter highlight a disgraceful attitude towards vulnerable consumers. That is why self-regulation is not an option and why we as politicians must move towards intervention.
We have seen in other industries that where there is a lack of competition, regulators can work with consumer representatives and providers to set effective frameworks. That has happened in the water industry, the energy industry and the financial services industry. The proposals therefore build on the best practice in market intervention. I believe that British consumers deserve the best practice.
Having set out the proposals, I will take on some of the arguments that have been made against them. In doing so, I urge hon. Members to learn from that most famous of Dickensian characters, Gradgrind, who argued:
“Facts alone are wanted in life. Plant nothing else, and root out everything else.”
Some people have argued that capping the costs of credit would cut lending in the industry and put firms out of the market—a market that Consumer Focus estimates is worth £35 billion a year. I urge hon. Members to read the European Commission research that investigated that very point and found no evidence to support it. Indeed, the OFT research that is often quoted is based on an industry study, which says that people could end up borrowing from friends and family. Furthermore, the EU research found that countries with no caps had higher levels of illegal lending than those with some form of cap.
Some people fear that if caps were set, there would be a race to the top for all lenders. That suggests that caps would encourage all banks and building societies to start charging 4,000% interest rates. When Policis considered the matter in 2004, it found no evidence to support that concern. The motion calls for a range of caps to reflect different types of loans. That reflects the fact that mainstream banks would not compete with lenders in the unsecured market.
Lorely Burt (Solihull) (LD)
On the Policis research, the former Labour Minister with responsibility for consumer affairs, the hon. Member for Cardiff West (Kevin Brennan), stated:
“Government carefully considered the case for a cap on interest rates following research carried out by Policis in 2004. The research showed that imposing a cap on interest rates could result in lenders withdrawing from the riskier end of the market, including the home credit market, denying vulnerable consumers access to legitimate sources of credit”.—[Official Report, 22 March 2010; Vol. 508, c. 149W.]
Stella Creasy
It is a pity that the hon. Lady was not here at the start of the debate when I set out clearly that the proposal is not for an interest rate cap, but for a cap on the total cost of credit. As I said, that is a difference that makes all the difference to the efficacy of the proposals. That is why many groups that share the concerns in the research that the hon. Lady has set out, are not concerned about these proposals. I urge her to look closely at that distinction. I will press on now because many hon. Members wish to speak and I know that the Minister will have a substantial amount to say.
Another point that has been raised is that new provisions in the Consumer Credit Act 2006, which came into force recently, may well change the market. Although those provisions are welcome, the protection that they offer presumes that choice is open to consumers and that if they are simply equipped with clearer pricing and the chance to rethink loans, that will resolve the problems that we have discussed. Customers with no alternative, struggling to make ends meet, cannot exercise choice or avoid borrowing. If someone is tied to the train tracks, knowing when the train is coming makes only a limited difference to their chances of survival. Until we give consumers a level playing field by producing powers to cap costs, we will not change the dynamic of the relationship.
Others have argued that the powers needed already exist, and that the Competition Commission could investigate and act. Indeed, the Office of Fair Trading referred the home credit market to the commission in 2004, as the hon. Member for Solihull (Lorely Burt) pointed out, and came up with various remedies. Here I turn to the views of Citizens Advice, which argues that the problems are getting worse, not better. That shows that those powers have not worked, so it is time to strengthen the intervention that we make in the market.
Lorely Burt (Solihull) (LD)
Let me begin by congratulating the hon. Member for Walthamstow (Stella Creasy) and the excellent way in which she has promoted her cause today. Everyone here wants to see a fair and accessible system of credit provision. No one in the Chamber today wants to see loan sharks or other unscrupulous lenders continue.
The coalition Government have begun a consultation on the best ways of achieving that. Personally, I am absolutely in favour of some form of regulation. There is no question about that. However, the problem is that calling on the Government to adopt caps now would prejudge the outcome of the consultation, and I should know, because I withdrew my private Member’s Bill on unfair charging for unauthorised overdrafts, as, although the Government were minded perhaps to support it, continuing with it would have prejudiced the outcomes. Therefore, although caps would ostensibly seem to be a reasonable way to stop excessive charging, we should examine them in the light of the evidence brought forward by the charities that support vulnerable people.
I have spoken to debt advice agencies and charities that do not think that caps will work. Some warn that the imposition of caps would remove many lenders from the market and drive people who are desperate for cash into the arms of illegal loan sharks. The chairman of the Consumer Credit Counselling Service has said:
“Interest…caps can harm people seeking this type of credit more than they help them.”
Another organisation, the Centre for Responsible Credit—one that I had not heard of before—has written to me to say that it disagrees, bringing to light a new European study. All those points must be looked at objectively. We have to think with our heads, not our hearts.
David Rutley (Macclesfield) (Con)
My hon. Friend makes some important points, and I completely understand the strength of opinion and the aim of trying to ensure that we have affordable credit. However, when I questioned Martin Lewis during his appearance before the Treasury Select Committee, he said:
“The main thing we could do to improve your regulations—to stop mis-selling, to have better informed consumers, to have more responsible borrowing, to penalise irresponsible lenders—would be to teach every child in school how finances work.”
We need to get the balance right in this debate when it comes to education, not just about credit, but about the importance of savings. Does she agree with those sentiments?
Lorely Burt
Yes, I totally agree with my hon. Friend.
Many Opposition Members who have spoken in this debate are new, so I wonder whether I could gently remind them that the previous Government launched three inquiries into the problem, all of which cautioned against using caps.
Rachel Reeves
My hon. Friend the Member for Walthamstow (Stella Creasy) has explicitly set out in her motion that we should have a cap not on interest rates, but on the overall cost of credit, so what the hon. Lady is talking about is not in the motion. Does she recognise that?
Lorely Burt
I thank the hon. Lady for her intervention, but no, I do not entirely recognise that, because I am not sure that she is distinguishing between what the two actually mean. I am not against what the hon. Member for Walthamstow is promoting, but I question her position. After 13 years—13 years in which her Government gave the matter due consideration and in which her party had an unquestionable desire to help—she seeks to introduce something now, in the middle of a Government consultation, when she knows that the Government cannot commit themselves in case they prejudice the consultation.
Stella Creasy
I just want to check that the hon. Lady understands that this is a Backbench Business Committee debate, so in theory Back Benchers could take a position that is different from that of the Government. If the Government were concerned about the consultation, they could abstain from the vote, thereby protecting themselves against any question of judicial review, whereas Back Benchers are free to express an opinion. Does she not agree?
Lorely Burt
Back in the real world, we do not want to abstain. We—the Government—want to support her proposition, so I am disappointed that she is taking the view she has.
We cannot accuse the Government of doing nothing. This week the consumer credit directive came into force, enforcing a 14-day cooling-off period. We have also increased the money going into catching, prosecuting and imprisoning loan sharks—these pariahs who feast on the misery of the desperate. The illegal money-lending teams are doing a great job and have been very effective, and we have also launched the consultation—the one that the hon. Lady does not seem to be interested in acknowledging.
Lorely Burt
I am sorry, but I cannot any more.
I, too, am impatient to see help for vulnerable indebted people, but there are other things that we could be doing. When the Financial Services Authority and the Office of Fair Trading merge into one regulator, one option could be to give that newly formed body the power to introduce caps if it felt them to be appropriate. Another option that I should like my hon. Friend the Minister to consider is the use of the post office network as a method of access for credit unions, especially as the Government have halted Labour’s closure programme.
The amendment, which I tabled along with the hon. Member for Worcester (Mr Walker) and other Back Benchers, retains all the good aspects of the motion without committing the Government to any course before the end of the consultation. I urge Opposition Members to support the amendment, so that we as a Parliament can work together to end this scourge, with our heads as well as our hearts.
John Woodcock (Barrow and Furness) (Lab/Co-op)
It is a pleasure to speak in this debate and to follow the hon. Member for Calder Valley (Craig Whittaker), who spoke well about an area that I know well and where I have relations. I add my congratulations to my hon. Friend the Member for Walthamstow (Stella Creasy) on showing the leadership to get this motion on the Order Paper today and to publicise it. She has been an example to us all.
This has been a good debate. Many hon. Members have spoken well and made excellent points. If the vast majority of hon. Members accept that there is a significant problem, it is a question of what the Government can and should do about it. As one hon. Member said, there is a legitimate argument in favour of funding financial inclusion education in early-years education. Partly because of the progress made in recent years, that is necessary, but it is not sufficient on its own. We should welcome the fact that 350,000 loans have been made by the not-for-profit sector, but that is not enough, and the enormous problem of people being charged appalling rates of interest remains.
The question is this: if the Government decide that they cannot allocate the funds that they have allocated previously, can they take regulatory action to improve the situation and make a genuine difference? That is why I am disappointed by the response of some Government Members. They have a far greater grounding in such matters than I do and have spent much of their previous careers and parliamentary time in dealing with this issue, but they have not grasped the nettle, and they will not support the motion. Instead, they are taking a course of action that will ultimately delay things and put the matter in the hands of a regulator that has not been given sufficient political direction to tackle the problem head on.
John Woodcock
If the hon. Lady does not mind, I will not take interventions because we need to hear as many speeches as we can.
The Conservatives and Liberal Democrats, when they were the opposition, spoke well of the need to tackle the level of debt in society and pointed out some faults in the previous Government’s policies. Now is their chance to do something.
Labour must accept that although we must protect people’s right to choose, we must not continue to give unscrupulous companies a means to exploit people. I hope that the Consumer Credit (Regulation and Advice) Bill, which my hon. Friend the Member for Walthamstow introduced, promotes credit unions. I am deeply proud of Walney Island credit union, which was set up by Churches in response to mass redundancies at Barrow shipyard to help people through those enormously difficult times. We should no longer tolerate the gap being filled in this way while alternative forms of credit are introduced.
In our privileged financial position, we have no need of loans of the kind regularly taken out by the poorest members of our society, but my hon. Friend the Member for Erith and Thamesmead (Teresa Pearce) spoke so well about the choice that she would probably have ended up making in desperation had she been in a situation in which she did not have enough money to get through Christmas.
The freedom to make choices is important, but it is ultimately part of the Government’s role to prevent us from being exploited and making the wrong short-term choices when in a desperate situation. That is what this debate is about, and I hope that Members on both sides of the House will support the motion.
Sheila Gilmore (Edinburgh East) (Lab)
I want to thank my hon. Friend the Member for Walthamstow (Stella Creasy) not only for securing this debate, but for the campaign that she has been waging on this subject since she was elected. Mention has been made of the review of consumer credit, and of the consultation, which closed some time ago. It is important to remember that that review would not even have looked at some of these issues if my hon. Friend had not pushed for them to be examined, so we are here today in part because of her efforts.
It always worries me when people say things like, “We don’t need to regulate yet” or, “We’re all in agreement with this, but—”.
Lorely Burt
The Labour Government had 13 years in which to regulate, and they conducted three investigations into this very subject. They did not bite the bullet, however, so the hon. Lady should not be criticising us. We are conducting a consultation nine months into this Government.
Sheila Gilmore
The hon. Lady has been told on several occasions by various Members that the proposal in the motion is different from some of the proposals that were not taken up by the previous Government. If I had been in this place then, I would have been pushing my Government to do exactly what the motion proposes. It is not good enough to say, “If your Government did not do this, you should not propose it now.” For how long does she think should we be disbarred from making such proposals? One year, two years, 13 years? On that basis, we might as well not be here at all, but perhaps some Members on the Government Benches would prefer that.