Creditworthiness Assessment Bill [HL]

Baroness Thornton Excerpts

2nd reading (Hansard): House of Lords
Friday 24th November 2017 Lords Chamber

[Baroness Thornton (Lab)]

My Lords, I am aware that this Bill, conceived by the Big Issue and the noble Lord, Lord Bird, has been a long time in gestation, and I congratulate the noble Lord on bringing it to the House. As we all know, it is an important rite of passage for a noble Lord to introduce their own Private Member’s Bill, and I identify with the passion, ownership and protectiveness that come with it. In this case, I share them with the noble Lord and am very keen to offer my support to his timely and important piece of legislation.

I share the noble Lord’s motivation behind the Bill, which is to address the shoddy deal that people who rent, people on low incomes, those trying to turn their lives around and possibly the homeless get from our banks, credit agencies, loan sharks and businesses such as BrightHouse. As the noble Lord said, the ones who can least afford it are being ripped off.

It is no surprise to me that BrightHouse was ordered to repay £14.8 million to a quarter of a million of its customers after the Financial Conduct Authority found that it had not been a “responsible lender”. The regulator said that in many cases BrightHouse had not properly assessed its customers’ ability to repay and they would now be compensated. Indeed, I am very pleased that there are alternatives to BrightHouse, with fair and ethical lenders such as Fair for You, a not-for-profit credit provider. There are not enough of them and they are not as able as BrightHouse to market themselves.

I declare an interest as a senior fellow of the Young Foundation, which carried out research a year or so ago into the experience of those on low incomes with high-cost credit. Its report pointed out that access to credit is an important part of 21st-century living, as the noble Lord said, with many people relying on it to purchase everything from a new home to a mobile phone.

For some people, credit is also an important element in simply managing their day-to-day living. It can help people to deal with economic shocks, manage the consequences of an irregular income and spread the cost of high-price items. However, access to affordable credit can be a major challenge for many households, typically classified as “sub-prime”, who then turn to higher-cost options such as home credit, payday loans, rent-to-own, and pawnbrokers. Some lenders estimate that 12 million people in the UK are using the alternative, high-cost credit market because they lack access to mainstream credit. So the noble Lord is quite right to point out that there is a gross inequality in our society when it comes to access to the credit that everybody needs.

Following its research, the Young Foundation is next week launching an online campaign to raise awareness about making rent count—if anybody cares to look for it, it can be found on #rentcounts—and about how it costs more to be poor. It is doing this in partnership with the Big Issue and in support of the Bill.

The fact is that millions of people are excluded from affordable credit because they do not have a credit history. The financially excluded are in a Catch-22 situation. Without a credit score, applicants are declined by mainstream providers and considered riskier customers, but the only way to build a credit score is to have a form of credit, such as a mortgage or credit card, in the first place. Most people on low incomes manage their limited money very carefully, yet banks, utility companies and other retailers can discriminate against them, and indeed they do so. An estimated 2 million people, many of whom are social housing tenants, take out high-cost loans because they cannot access more affordable credit. That is unjust. As the noble Lord pointed out, it is a division in our society.

Individual credit providers—mortgage lenders, for example—are already able to use information such as rental history if it is available. The intention of the noble Lord’s Bill is to ensure that a customer’s rental and council tax payment histories are explicitly taken into account as part of this process, by giving the FCA the power to make a new rule to this effect. As the noble Lord said, the Big Issue has been working with the consumer credit reporting agency Experian to develop the Rental Exchange. That is an important project, which I accept has led to the Bill coming to this House. It has shown two things. The first is that the project is too complex and not well-known enough to be used as you would want it to be used. Secondly, it shows that market solutions are not necessarily the answer; it shows that one of the answers to the problems of credit rating and creditworthiness is a regulatory one.

I was pleased to receive a briefing from the RLA suggesting that, according to a survey of 3,000 of its members, 60% of landlords are in favour of the proposal. It says that the proposal is good both for landlords and for tenants. I agree and I thank the RLA for its briefing.

It seems to me that this is a good idea. The Government have indicated at certain times that they recognise that it is right to take account of the payment of rent to assess creditworthiness. As the noble Lord, Lord Bird, said, the Bill is about equity and fairness. Why should people who manage their money and pay their rent not have their diligence recognised in their credit rating? This is discrimination against renters and people on low income, so I hope that the Government will back the intention and the idea that is contained in this excellent proposal.