Payday Loan Companies

Debate between Damian Hinds and Sheila Gilmore

Monday 20th January 2014 Commons Chamber

[Damian Hinds (East Hampshire) (Con)]

It is a great pleasure to follow the hon. Member for Makerfield (Yvonne Fovargue), who, as always, speaks not only with great passion but expertise and first-hand experience. This is an important debate, and not just because of the widespread detriment that is acknowledged to result from the payday loan market and the huge growth in it, which is not new but continues to happen and is set in the context of a much wider high-cost sub-prime market in this country. We cannot consider one without thinking about the interaction with the others.

The debate is also timely. This is debt awareness week and this Friday, the 24th, has been dubbed payday loan danger day as apparently it is the day of the year on which, as a result of Christmas and so on, people are most likely to take out a payday loan. To look at the more positive side, we are also in a period of regulatory change and an evolving FCA regime. This is Parliament’s opportunity to have some input into that and, I hope, to shape it.

We should also acknowledge what has already been done and welcome it: the enhanced enforcement from the OFT; the referral of the entire sector to the Competition Commission; and the FCA’s announcements on its regime, including the affordability checks, measures on roll-overs, advertising restrictions and what is being done on the continuous payment authorities, which the hon. Member for Makerfield mentioned. It is also worth acknowledging some of the wider things the Government have done, such as putting financial education on the national curriculum and providing great support for credit unions, putting £38 million behind the credit union expansion project and liberalising that sector.

[Sheila Gilmore (Edinburgh East) (Lab)]

On credit unions, does the hon. Gentleman agree that we need to put a lot more effort in if the system is going to work? The credit union in my constituency is run by volunteers and operates from an upstairs office, without a shop front. The payday lenders and the like are in glossy high street operations. Perhaps local councils could help credit unions to get out on the high street.

[Damian Hinds]

The hon. Lady is right. Of course, many local councils do that, providing premises and soft support in all sorts of ways. What the Government are doing, which is key, is trying to help the sector get to a point where it stands on its own two feet. Although subsidy and direct support have a role, we eventually want the sector to thrive, to be self-sustaining and to be able to take on the other lenders. That will include brand awareness and a product range that is right and that attracts people, but essentially we want the sector to be a bigger, professional operation that provides a real alternative. I think that we are moving in that direction, both through the Government’s support and through the liberalisation of the sector, with the legislative reform order and the move from a 2% cap to a 3% cap on interest a month. That puts credit unions a little closer to being able to compete with payday lenders, although it is still very hard to break even at 3% per calendar month on a payday loan.

The biggest change by far that the Government are putting in place is the duty to have a cap on the cost of credit. That is an enormous change—not just for a Conservative or coalition Government, but even for a Labour Government. I was reluctant about such an idea, but a couple of years ago I finally concluded that we needed to cap total costs in this market.

Why was I reluctant and why did I change my mind? I was reluctant because, in this country, with the exception of natural monopolies and a few other very specific examples, we do not do price control. It goes against the philosophy of our economy and of our politics. We—by which I mean most people in this House, not just those on the Government Benches—tend to believe in the efficacy of markets, in consumer sovereignty and in the beneficial impact of price competition. Why did I change my mind? I was trying to reconcile all those beliefs about what markets do with what we see in this market, and in many ways the normal laws of economics do not seem to apply to high-cost sub-prime credit.

The hon. Member for Makerfield talked about how pessimistic some people can be, but in some ways people are incredibly over-optimistic, even about their ability to pay back a loan. They feel that they are not the type of person who will get into difficulties. The hon. Member for West Bromwich West (Mr Bailey) set out very clearly how consumers in this market tend not to buy on the basis of price, so, unlike in other markets, bringing in more competitors does not tend to bear down on price.

If the normal rules do not apply, in many ways the normal remedies that one might apply to a market that was not working well do not apply either. Of course we want clarity about what a product offers, disclosure, health warnings and so on, but there is a limit to their effectiveness. Warnings quickly become part of the wallpaper of life, just like that thing that goes, “Your home is at risk if you do not…blah, blah, blah.” People stop paying attention and, as I say, borrowers do not anticipate that they are the ones who will end up with a problem.

As for sound financial education, of course we want educated, empowered consumers but there are limits here too. There is a big time lag. If we educate the next generation, we will have to wait quite a long time before they are in a position to need to use that education—and I can guarantee that by the time they do need it, everything will have changed. If we had had financial education when we are at school, we would have learned about clearing houses and endowment mortgages. They would have said, “Don’t worry—at least a final salary pension will see you safe,” and we probably would have been told that payment protection insurance was a damn good idea and we should get as much of it as we could.

Of course competition is a good thing, but if it does not affect prices there is a danger that more competition can mean more ubiquity, more advertising about speed and convenience and more proposals of instant solutions that do not really exist—and, I am afraid, more people believing in those things.

Micro-interventions are another suggested solution. We think that if we find an abuse in a market we should stamp it out, but there are limitations in that regard. If we restrict roll-overs, I can guarantee that the industry will find a different way to make money. That even applies to the real-time database that people are setting such store by—we should always beware when people think that one solution will solve a lot of problems. Quite apart from the other problems caused by the creation of mega-databases, there is also the issue of scope. In Florida, for example, there is no home credit market on the same scale as ours. If a real-time database is to be really effective, it must include the other parts of the market too.

If we believe that the current levels of payday lending are a social ill, that it will not go away as the economy improves, as there is growth and real wages increase, and that to some extent the market creates its own demand through advertising and supply, we should ultimately conclude that we must make the market less attractive. We must reduce its ubiquity so that we reduce both supply and demand. Not only do we want to make the market work better, we want less of a market. A cap on the cost of credit is a fundamental part of that, not only in ensuring that consumers are not ripped off but in making it less attractive to players coming into the market. We do not want to make it unattractive, because, as the hon. Member for Makerfield said, there are of course times when the short-term borrowing of relatively small sums of money makes perfect financial sense, but we want to make it less attractive.

A cap is, of course, not a panacea either. First, stimulation, whether big or small, at the margin of the illegal market will definitely be a problem. Of course, firms will find other ways to make money. When people hear that, they say, “Oh, but I’m not talking just about a cap on interest. I mean a cap on the total cost of credit,” but what do they mean by that? I suggest that people mean different things and think that everyone else is using the same definition. Sometimes, people mean restricting behavioural charges or penalties. That is a perfectly legitimate goal, but it is not the same as reducing the overall cost of credit. Such a cap would have to be really rather high to tackle the real abuses.

Some people say, “Ah, but we’re talking not about penalties, but the overall cost and the hidden fees.” Well, that is what annual percentage rates cover. If a fee is paid by everyone, it is already included in the APR. Because people do not understand percentages very well, they could be presented with a cash number for the total cost of credit, but I suggest that there is a big difference between using a cash number for disclosure where it makes perfect sense—“You will pay x per £100”—and using it for a limit where it can be generalised. That probably explains why most usury caps use APRs, and I suggest that the twin caps approach now used in Australia is probably the most effective.

Work Experience

Debate between Damian Hinds and Sheila Gilmore

Tuesday 13th March 2012 Westminster Hall

[Damian Hinds]

The hon. Gentleman makes a good point. I shall leave it hanging, so that the Minister can pluck it at the appropriate moment. All I would say is that the service industry is an enormous part of the economy. We all want to see growth in manufacturing, but services are a huge part of the economy in many of our constituencies. Getting work experience in that area is absolutely valuable in its own right.

The bemused e-mails that I have been receiving from my constituents say something along these lines: “I understand that the programme is voluntary. There are some advantages to the individual in taking part, but if, after a period of time—not on the first day but after a week or so—they just cease to turn up to work for no good reasons, there are adverse consequences.” It is called a work experience programme—I do not know about you, Mr Crausby, but that sounds an awful lot like an experience of work. I pay tribute to the firms that have taken part in the programme, particularly those that have stood firm and not given in. However, I also understand the nervousness of some of the firms that have issued statements expressing concerns.

We all welcome the new media campaigns with which we are pleased to communicate on a regular basis. As politicians, we also know that they are not always all that they purport to be. I am probably unusual on the Conservative Benches in being a Guardian reader. Perhaps I was the only Member present who was a little bemused, or amused, to read the helpful clarification in The Guardian that this right to work campaign was not run by a bunch of lefties because it contained not only the Socialist Workers party, but members of UK Uncut and the Occupy protest movement. I understand the nervousness of firms with quarterly results to deliver and daily revenues to monitor. We need a debate about how some of these campaigning organisations work and about their proper role in society.

[Sheila Gilmore]

I can say from my long political experience that if views that might be deemed extremist do not strike a chord with the public, they will simply sink. If some of the criticisms of this initiative, which have been raised in this House previously, had had no resonance with the public—

[Damian Hinds]

I am grateful to the hon. Lady. All credit to those organisations for creating a splash over the issue. However, I am afraid that they have done it by misleading the public and saying that young people are being forced into slave labour when that is absolutely not the case. This relates to what I was saying about the Opposition—I do not include the small number of Labour Members who have come here today. When their leader had an opportunity to debunk that theory and to put the record straight, he failed to do so. It was a great shame that we did not hear such a view from Labour, the party of work.

I know that we are short of time, but I should like to broaden my contribution to include work experience at school. Whenever employers give evidence on the Education Committee, on which I sit, they predictably complain about qualifications not doing what they say on the tin and about young people not being work ready. Work readiness is sometimes called employability skills, soft skills or, when the terminological obfuscation gets extreme, transferable non-cognitive skills. Essentially, what it means is all the stuff about dealing with other people—turning up to work on time, knowing the right way to dress, empathy with the customer, smiling and pride in a job well done. All those things can be partly developed through work experience. When we ask employers if the situation is getting worse, they often say that it is. We cannot demonstrate that it is getting worse. It may be just not getting better, but we are in the business of economic growth. To achieve economic growth, we need such things to be improving year on year.

We need a debate about the role and quality of work experience in schools. It may be that the two-week block in years 10 or 11 is an important part of that, but it does not seem to be doing the full job. With the rise in the participation age, I wonder whether moving the bulk of work experience into the sixth form might be more appropriate. It may well be that there is a role for both. I also hope that we can consider other ways of augmenting and bolstering that work experience. Perhaps we can have a more formal assessment of that young person’s performance in work experience that can count towards their future job prospects.

Finance (No. 3) Bill

Debate between Damian Hinds and Sheila Gilmore

Monday 4th July 2011 Commons Chamber

[Sheila Gilmore]

Indeed. On Saturday, I was at just such a festival in my constituency. It was a beautiful day—the first sunny Saturday for some time. Volunteers from Castle credit union, who help to keep it going, were there for exactly the reasons the hon. Gentleman suggests. However, if, unlike credit unions, high-cost lenders have a high street presence—extremely attractive, brightly lit and hardly missable—it is much easier for people to find them.

Regrettably, only 2 % of people in the UK are members of a credit union. We can all work harder to increase that number, but one thing that would clearly help would be real resources to build the movement. Experience in my city is that real resources, far from being put in, are declining, and there are even fewer members. Despite the efforts of the volunteers who man stalls at local fairs and festivals, credit unions are not providing the competition we want with high-cost lenders. I should dearly like people to use credit unions instead of those institutions.

I understand that this is politics, but when Opposition Members make proposals we meet the accusation that Labour should have done things over the past 13 years, and it is suggested that the fact we did not debars our making proposals and expecting them to be listened to. I am sure that if my hon. Friend the Member for Walthamstow had been a Member during our period in government, she would have been harrying Ministers in exactly the same way as she has harried the Government over the past year. She would not have been afraid to speak.

We should not accept too lightly the suggestion that the previous Government did not look seriously at financial inclusion. The present Government say that they are interested in it too, but they do not put in the means to make it happen. It is not good enough to say they are interested. In my Westminster Hall debate, I referred to our manifesto proposal to oblige banks to provide basic bank accounts. The Minister’s response was, “Oh, we don’t really want that sort of regulation. We want it to be voluntary and we want to work with banks.” That is all too often the Government’s response. They say they want the ends, but they are not prepared to put in the means.

The previous Government did a lot of work on financial inclusion, but no one thing is enough: credit unions will not do it; basic bank accounts will not do it; and taking action against high-cost lenders alone will not do it. We need a range of measures.

Some of the steps that would help have been positively stopped by the Government. The growth fund, which helped to boost credit unions and other community-based financial institutions, has not been renewed or extended.

[Damian Hinds]

Is the hon. Lady aware of the modernisation fund of up to £73 million?

[Sheila Gilmore]

I might be wrong, but I understand that the fund is not a substitute for the money that was available through the growth fund. When it was introduced, it was hoped that banks would lend to community-based lending organisations; they have not done so, yet high-cost lenders can get finance to expand their businesses to make them attractive.