Financial Services Bill

Baroness Coussins Excerpts

Wednesday 28th November 2012 Lords Chamber

[Lord Flight]

My Lords, first, I congratulate the noble Lord, Lord Mitchell, on raising this issue and, as a result, getting something done about it, and on his research in the territory. Also, I greatly welcome the Minister’s response and I look forward to government proposals that address the problem.

I shall make one or two focused points. The right reverend Prelate the Bishop of Durham made the point that we used to have anti-usury laws. We used to have a money-lending licence. When I started my career, there were rules about the maximum rate of interest that you could charge. All that had been in place going back more than 100 years. I assume that it all disappeared with the big bang, but it is a failure of regulation that the problem has been growing and getting worse with technology, but no regulator, as far as I am aware, has been suggesting to this Government or the previous Government that it needed addressing.

It is in part for that reason that I have reservations about letting the regulator just get on with running it. There need to be written in law caps on the maximum rate of interest. They could be related to the rate of inflation, to deal with that obvious problem. I do not trust the regulator to get to grips with the problem by itself.

My next point is that it illustrates the shame that we go on turning generation after generation out of schools who are financially illiterate, who do not understand what they are taking on. I remember talking to a young lady at university and asking how she was going to fund herself. She said that she had so much by way of a student loan and the rest on a credit card. I said, “How on earth are you going to pay back the credit card?”. She said, “Oh, do you have to do that?”. It is astonishing that people simply do not understand finance. Until we get financial literacy into the national curriculum, people will go on being ignorant and unable to look after themselves adequately.

It is a moral issue. I object to usury. I am sure that if my noble friend Lady Thatcher were in the Chamber, she would speak more strongly than anyone in objection to usury. We dealt with it in the past; let us get on with dealing with it again.

[Baroness Coussins]

My Lords, I add my support to the amendment introduced by the noble Lord, Lord Mitchell. I declare an interest as president of the Money Advice Trust, which is a charity that helps people across the UK to manage their debts. It does that by offering free advice through the National Debtline and by supporting advisers in the free advice sector.

So far this year, the National Debtline has taken more than 15,000 calls already from people struggling to repay payday loans. In the whole of 2011, it took 10,000 calls for help with payday loans, so that represents a staggering growth rate. Indeed, over the past two years, there has been an increase of 268% in the number of callers asking for help on payday loans. A telephone survey conducted by National Debtline also showed that the OFT guidance is not being followed, notably the part that states that creditors should make a reasonable assessment of whether a borrower can afford to meet repayments in a sustainable manner. The same survey showed that 66% of clients said that their lender had not conducted an affordability assessment.

This is not the right time to go into detail about what the FCA rules should be, but I suggest that they should certainly include a mandatory breathing space, with a freeze on interest and charges, if people are experiencing financial difficulty and have notified their payday lender that they are seeking support from a debt advice agency. In practice, by contrast, there is evidence of letters and requests to cancel CPAs or to freeze interest and charges being ignored, and debt advice agencies bypassed. The recent Citizens Advice conference highlighted examples where payday lenders had routinely refused to engage with advice agencies, had not answered letters, had refused to freeze charges and had not stopped CPAs even when requested to do so. I have sat in as an observer on calls to the National Debtline and witnessed the distress of people in debt as a result of payday loans. The powers for the FSA being sought by this amendment would be a small but very important contribution to the prevention of yet more unaffordable debt that ruins lives.

[Baroness Kramer]

My Lords, almost without exception this House has spoken and is speaking with one voice on this issue. In the United States it is quite common, when an important piece of legislation goes through, to name it after its sponsors. Whether this is the Mitchell-Sassoon amendment or the Sassoon-Mitchell amendment, it will have a very big impact on people’s lives.

However, it is important that the FCA, in the language that is already in the Bill, has the powers to do the acts for which the amendment calls. An amendment such as this ensures that the point is highlighted—that it is understood and not lost—because the FCA will have a wide range of areas to address. In the Bristol study that was commissioned and which we will be reporting in the next few weeks, the FCA and the Government demonstrated a very high level of concern around this issue, and the need to get underneath it to really understand the dynamics.

The importance of ensuring that the clause is an enabling one was well illustrated by the noble Baroness, Lady Coussins, a moment ago. There are many very complex issues around this that will need very direct attention. The devil will be in the detail to ensure that the amendment is effective in the way that the House desires, and that it does not create the opportunity for loopholes. We are talking about an industry that will game legislation if it has the opportunity.

I will pick up the issue that was addressed by the right reverend Prelate the Bishop of Durham, because it is hugely important. Almost all of this will be for naught if we do not ensure that there are appropriate sources of credit for those who need it at a reasonable price. The issue that the House is facing today has been neglected over decades; it is a challenge that the Government are picking up. It means that the clauses have to stand together with those that lower barriers to entry and which enable the community—whether social enterprises, charities, businesses, local authorities or whatever—to come together and take the initiative to build up the sources of finance that exist in many other countries.

The noble Lord, Lord Mitchell, talked about the constraints on payday lenders in the United States. One of the most powerful constraints is that there are community banks where individuals can get credit on reasonable terms. That is a far stronger constraint on any payday lenders in the United States than legislation could be. That is what we need here: the opportunity for market constraint. However, I congratulate all sides on coming together to be effective for some of the most vulnerable people in our community.