Financial Services Bill

Baroness Howe of Idlicote Excerpts

Wednesday 28th November 2012 Lords Chamber

[Baroness Howe of Idlicote]

My Lords, I thank the noble Lord, Lord Sassoon, for what he has said; it sounds like an interesting and potentially successful solution, but I am still quite confused as to whether we will get to the right conclusion on time. I thank the noble Lord, Lord Mitchell, and congratulate him on tabling his amendment, to which several of us have added our name. I am glad to have been able to hear the comments of the right reverend Prelate the Bishop of Durham, because he gained great expertise in financial matters in his career before he joined the Church.

There has been plenty of support for the amendment of the noble Lord, Lord Mitchell, from other areas around the country, from councillors and from MPs. For my own part, having sat through the Welfare Reform Bill, with its drastic consequences for the poor and disabled, and subsequently witnessed for the same group the extent to which voluntary legal aid and advice services were being curtailed so that they were not getting the help that they had had in the past, my first reaction to the amendment was that it was far too weak. However, I have listened to what people have said and accept that consumers without bank accounts or with no credit history—that is some 25% of credit users and 23% of payday loan users, I was amazed to find—have no choice when facing a financial crisis but to resort to these loans. Nor should we forget, as has been pointed out by the noble Lord, Lord Mitchell, and by Which? reports, that some 78% of payday loans are used for basic essentials such as food or household bills. So if these organisations—I am tempted to call them by less pleasant names—are to stay, undoubtedly the amendment of the noble Lord, Lord Mitchell, will be a huge help. It may be that it will be a reserve weapon, as it were, but it will nevertheless be a very important weapon. I hope that I can feel confident at the end of our discussions. I want reassurance from the noble Lord, Lord Mitchell, that he is sufficiently satisfied with what he has heard, that otherwise he will bring back further amendments at a later stage, and that that will be acceptable to the whole House.

[Lord Davies of Stamford]

My Lords, it is a pleasure to speak after the noble Baroness, Lady Howe. Like her, I felt that the amendment of the noble Lord, Lord Mitchell, was the very least that we should be doing in this area and I would have been happy with something even stronger. I congratulate her, my noble friend Lord Mitchell and the right reverend Prelate on their initiative in bringing this matter before the House and, indeed, before the country.

I am going to say something which I think needs to be said this afternoon and is probably best said from the Back Benches—that is, I think the Government should be hanging their head in shame. They have had many months to prepare the Bill and bring it forward and have not brought forward the clause that they are now promising, although they had every opportunity to do so. It is only because of the determination and initiative of my noble friend and his colleagues and the great moral force brought to this matter by the right reverend Prelate that, at the last minute, the Government have decided that they have no alternative but to do the right thing for once. That needed to be said; this has been a very dramatic afternoon when we have seen a U-turn.

This evil we have been talking about—and it is an evil—has, of course, got worse, for the reasons given by my noble friend, over the past two years, but it has been with us for a long time. It is an evil that I was well aware of when I was a Member of the House of Commons; most people with constituency experience came across it. The normal trick of loan sharks is to persuade people to borrow so much money at such a high rate of interest that they can never get around to repaying the principal because any cash they happen to have simply goes to servicing the debt by paying the interest. Essentially, they lend someone £500 and have their thugs go around every week, or every two weeks, collecting at their door whatever the poor family concerned can pay—£20 here, £30 there—which all goes towards the interest. The interest piles up and the principal is never going to be repaid but the lender makes a return on his capital of hundreds, maybe thousands of per cent every year.

I remember coming across a particularly nasty scam in my constituency, which I fear may still be going on. It is the targeting of people who have some equity in their house but very low cash flow in relation to their debts and persuading them to consolidate their unsecured debt into a secured loan, something one should never do, in principle, except in very exceptional circumstances. These people are, generally, financially very naive and agree to do it; they take out a secured loan of whatever amount, but they can never afford to service it at an APR of, perhaps, 20%. The lender knows perfectly well that they will default, that they do not have the cash flow to service the loan, but he has security of several thousand pounds of equity in the house and he puts into the loan agreement enormously expensive penal clauses, so that, in the event of default, thousands of pounds will be paid by way of compensation or penalty interest. He knows, of course, that the borrower is going to default; he hopes that the borrower will default at the first interest payment date, not the second or the third, because that way he turns his capital over more quickly. As soon as the borrower defaults the lender forecloses on the loan and takes all his additional thousands of pounds in penalty interest, a very large slice of the remaining equity in the house. It is extraordinarily cynical, extraordinarily cruel, and this kind of scam and others like it thrive in what we like to think of as our civilised and humane society.

We need to do something about this very rapidly indeed. What has been put forward this afternoon is an absolute minimum; I would have been much happier with something along the lines of the anti-usury laws. I am so glad that the right reverend Prelate is a churchman and not afraid to use old-fashioned but eternal concepts such as usury. I would have been happy with the sort of anti-usury laws that some American states have. We are not going to go that far this afternoon. I hope that the government amendment lives up to the promises that have been made this afternoon by the Minister.