Debt Advice (FCA Levy)

Caroline Dinenage Excerpts

Tuesday 21st January 2014 Westminster Hall

[Caroline Dinenage (Gosport) (Con)]

It is a great pleasure to serve under your stewardship, Mr Hollobone. I would like to add to the praise heaped on to my hon. Friend the Member for Worcester (Mr Walker) for securing this important debate and also for the sterling work that he has carried out with Members from all parties on championing such an important issue.

The hon. Member for Makerfield (Yvonne Fovargue) pointed out and properly articulated the fact that, a few years ago, most of us had not even heard of payday loans. They have grown like a cancer in the past few years and led many thousands of our constituents into a spiral of debt and despair. Addressing this growing, innovating and evolving industry is a matter of urgency. The FCA must take a firm grip on the issue to bring unscrupulous lenders under control.

Of course, in and of themselves, payday loans are not harmful; it is their propensity to turn into defaults and rollovers, as well as the insufficient quality of the advice, that is leading to so much misery. Unscrupulous traders and the devastating impact of continuous payment authorities are concerns for all our constituents who have taken out payday loans. That is why we must do all we can to bring clarity to the dangerous terms and conditions that leave borrowers caught unawares, with no means to pay for their food, utility bills and other household costs.

With a prophesy worthy of Mystic Meg, my hon. Friend the Member for North Swindon (Justin Tomlinson) pointed out that I might allude to some adult literacy and numeracy issues in my speech. He is quite correct. Recent research conducted by the OECD shows that there are 8.5 million people in England and Northern Ireland with the numeracy ability of a 10-year-old child. Payday lenders can seize the opportunity to take advantage of such individuals, who struggle to keep on top of their weekly shopping bills, let alone the complex percentages and interest rates involved in taking out a loan.

In order to strangle the problem at the roots, we need to address the problem of weak numeracy skills and promote the importance of financial education. That is why my hon. Friend has done such sterling work in this field. We cannot leave behind a generation of adults who are unable to comprehend the staggering interest rates that we see. We must improve how we signpost adults through debt advice to the numeracy training that they so desperately need. Independent debt advisers specialise in providing such a service, and their role in mitigating against the devastating impacts of payday loans is crucial. Without such targeted help and support, many of those who fall victim to payday lenders will be unable to break the cycle of financial trauma.

Over the past four years, Citizens Advice estimates that it has seen a tenfold growth in the demand for debt advice, as many colleagues have already said. That significant rise has undoubtedly been stimulated by an increasing dependence on payday loans, which take advantage of some of the most vulnerable people in our society. One aspect of payday loans about which I am particularly concerned is refinancing. The recent review by the Office of Fair Trading revealed that individuals seeking debt advice had, on average, refinanced their loans at least four times and were repaying six separate payday loans. Such shocking figures show the extent of the difficulty that borrowers can get into before seeking help, as the hon. Member for Makerfield said.

What we see is not responsible trading. The absence of ready access to helpful information prevents people from gaining the necessary autonomy that they need to put a stop to successive borrowing. Although the FCA’s proposal to force payday lenders to signpost borrowers to debt advice will promote greater responsibility and hopefully discourage the selling of unaffordable loans, it will also place even greater pressure on organisations that have limited resources. Therefore, like many colleagues, I strongly advocate the new powers that the FCA will have to levy all consumer credit firms to help to fund MAS. We must ensure, however, that the level of payment is commensurate with the problem.

Consumer choice is a paramount factor in the issue of payday loans. Individuals must be well informed and aware of the risks before and during their engagement with payday lenders. That is why debt advisers are so important and must be provided with the financial resources needed to continue their good work. It is also important to emphasise that we are not seeking to eliminate the access to credit streams that provide a safety net to many of the lowest paid. However, such borrowing opportunities must be subject to rigorous regulation and injected with the responsibility needed to bring about greater consumer advice and confidence.

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[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I have listened intently to the debate; Members may wish to intervene during the course of my remarks. I congratulate the hon. Member for Worcester (Mr Walker) on securing this debate and the Backbench Business Committee on seeing the wisdom of holding it. I am sure that it is due to the Committee’s good judgment rather than simple coincidence that we had a Backbench Business debate on payday loan companies last night in the main Chamber, followed by this one. The two debates are linked, and it adds value to be able to follow last night’s discussion with this one. There were 17 Back-Bench speakers last night, not counting interventions, and Members had the opportunity to lay out a range of reasons why tougher action is needed on payday loan companies generally and ways that regulation could be improved.

When I first saw that this debate was going to be about the levy, I feared slightly that people would think the issue was only a technical one and not quite as important, but it has been useful to hear a number of speeches linking the principles of what needs to be done on payday lending and regulation and how it can be put into practice for the greater good. It has been heartening to hear that from Members from all parties; we have not got bogged down in the technicalities of the levy, as we might easily have done.

Anyone who has gone through the Library briefing—I am sure that everyone here has, although perhaps people outside this room have not—knows that it explains in great detail how the levy is calculated and the various different sections and categories. The Minister may want to say something about that and whether, in the longer term, he has any plans to review the levy further. I know that the Government always say that they keep everything under review—he and I often exchange comments on that particular approach—but it might be useful to hear from him whether he has any further work to do on that.

We have heard that although better regulation is of course important, it is also important that we continue to ensure that proper debt advice is available. In his opening speech, the hon. Gentleman made the key point that there is a danger that the Financial Conduct Authority might simply be seen as a collection agency. Several speakers made the point that the Money Advice Service has a flatline budget—I hesitate to use that word—but the Government are not seeking to increase the budget, at a time when we have all heard about and know the pressures on various organisations that provide support. That is a potential problem, and I hope that the Minister will address it in his reply.

We want to ensure that the cost of regulation does not take up all the available resources. That is why I highlight the point about the complexity of the levy as it currently operates. We do not want the FCA and MAS to spend all their time trying to administer it, so that resources do not get to the front line. Another key point made is that we do not want the amount of advice available to be reduced.

On the nature of advice, we want the opportunity to widen the scope for funding. I will return to that, but I want to mention a couple of the points made by my hon. Friend the Member for Sheffield Central (Paul Blomfield), who has a long track record of campaigning on payday loan issues, as do the majority—in fact, all—of the hon. Members here. He made the point early on that we have a unique opportunity to tackle the problem without additional cost to the public purse, a point reiterated by my hon. Friend the Member for West Bromwich West (Mr Bailey). I am sure that it will always be attractive to the Treasury, when we have a problem, if we can identify a potential solution that will not cause additional cost to the public purse, especially at a time when we are trying, as I am sure the Minister will mention, to reduce the deficit and look to the future. That ought to be considered.

I would certainly be concerned by any suggestion that the changes to get more companies paying the levy by bringing them into the scope of the regulation would mean a levelling down in terms of what they pay. The point about the payday loan companies, which has been emphasised in a number of debates, is their potential detriment to individuals, because of the way they operate. They should certainly not get off the hook, particularly as we are hearing that more problems are being identified.

It was also correct to suggest that the FCA should not simply exist to signpost people at particular stages, for example rollover, however important that role is. Nevertheless, we need advice to be available and easily accessible.

I am also concerned about an issue that was raised in the briefings that I have been provided with, for example by Citizens Advice and the StepChange charity. We must not have a perverse incentive whereby the system would mean, for example, that on the issue of write-offs companies were somehow moving to operate in a way that would be detrimental to the individual debtor, so that those companies could somehow avoid paying what would be seen as their fair share of the levy. Lenders should pick up the bill for some of that levy. Again, I hope the Minister will say something about that issue.

My hon. Friend the Member for Makerfield (Yvonne Fovargue) talked about the “behind the clock” syndrome and I think it was the hon. Member for North Swindon (Justin Tomlinson) who referred to carrier bags. I do not want to make this debate sound like a competition, but I spent many years as a front-line social worker providing a lot of welfare benefits advice, among other things. I recall occasions when people had large black bin bags full of information. What never ceased to amaze me at the time was the fact that people had kept all of the paperwork, including every letter that had come in. Quite often, those papers were stacked in fairly neat order, with elastic bands around them, but they were not then dealt with; they had simply been put away because the problem they related to was too difficult to deal with.

One thing that I learned from those experiences was that we do people no favours whatsoever if we do not have a face-to-face discussion and work with them to get them out of the mess they are in. Simply telling someone to go and read a website, or to get information online or even a pamphlet, is not enough; it ought to be an introduction to them, so that they can sit down face to face, assess the scale of the problem and work it out. Again, the importance of that process was raised by a number of hon. Members.

[Caroline Dinenage]

I do not want to bang on about the same subject, but does the hon. Lady agree that sometimes adults lack the necessary literacy and numeracy skills to address the issue of debt and so, even if they wanted to address it, debt is a massive puzzle for them? We also need to look at the ways that we signpost people to address that skills issue.

[Cathy Jamieson]

The hon. Lady makes an important point, and the issue of financial education was raised in the debate in the main Chamber last night. Financial education is important because there are people who have literacy and numeracy problems, which are often picked up at the point that they come for advice. They may not have felt able to tell people before then, but the problem becomes very apparent in a face-to-face meeting with advice workers, who can perhaps assist them to get help and support.

More broadly, financial education in schools is, of course, valuable; I have said that many times. It is the right thing to provide, but if it is only seen as something to be provided in schools that is not enough. There are key points in people’s lives when there is the opportunity to introduce them to different forms of financial education.