Debt Advice and Debt Management

Ed Davey Excerpts

Thursday 1st December 2011 Commons Chamber

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)]

This has been an excellent debate with contributions from all parts of the House. I will try to do credit to it in my response. I hope that I will be able to reflect on many of the excellent contributions.

The reason this has been such a good debate is that Members, from talking to their constituents, know that this is a huge problem. There is a rising tide of misery out there. It is incumbent on this House and this Government to respond to that in as many ways as we can. I will do my best to do that. For many years in opposition, my right hon. Friend the Secretary of State for Business, Innovation and Skills was critical of the previous Government because they did not take action to deal with the rising indebtedness of many families and individuals across the nation. He feels that we need to do as much as we can in government to deal with the misery that is the legacy of that increase in personal indebtedness.

In my initial remarks, I will go through each of the contributions and pick out points and respond to them. The hon. Member for Stockton North (Alex Cunningham) asked about the future funding of debt advice. The hon. Members for Chatham and Aylesford (Tracey Crouch) and for Edinburgh South (Ian Murray) also touched on that matter. I know that the funding of debt advisers under the financial inclusion fund is of great concern. The House will know that my Department has committed to continue the funding for this year.

Money Advice Service has also been clear that it intends to renew all existing grant agreements for the provision of face-to-face debt advice next year. It is in the process of securing funding from the Financial Services Authority for that, so that people in need have access to good advice. We look forward to that being confirmed by the FSA board over the next few days or weeks. It is considering the business plan put forward by Money Advice Service. Once it has made its decision, that business plan will be published. That answers another question from the hon. Member for Stockton North.

The hon. Member for Makerfield (Yvonne Fovargue) made an extremely informed contribution. I would like to pick up on her point about the importance of the Citizens Advice brand. That is critical to how we address these issues. People in distress, who may be suffering from mental health problems, family breakdown or any of the other things that compound the problems of debt, often do not know where to turn. As Members have said, they can react to the first piece of advertising that they see and end up in the wrong place. We need to ensure that everyone knows of the existence of the free debt advice that is available and knows that that is where they should go. I believe that, because the Citizens Advice brand is so well known and so trusted, it is the brand on which we need to build. I am grateful to her for making that point.

My hon. Friend the Member for East Hampshire (Damian Hinds) rightly talked about credit unions. He also touched on the research that the University of Bristol’s personal finance research centre is doing, having been commissioned by the Government to look into whether a cap on the total cost of credit is the right way forward. We will await that research before making any further moves in that area.

My hon. Friend the Member for Grantham and Stamford (Nick Boles) made interesting comments about the nudge unit. I do not know whether there are minutes from that meeting. He also talked about the different regulatory approaches that we could adopt. Not only will I think about what he said, but I am very happy to meet him to discuss it further.

My hon. Friend the Member for Solihull (Lorely Burt), in a very effective contribution, praised the OFT for how effective its crackdown has been. She asked for it to be given more resources and more teeth, and she gave some ideas about how we could obtain those resources.

The hon. Member for Meon Valley (George Hollingbery), who is no longer in his place, mentioned bailiffs. I will relay his remarks to my colleagues in the Ministry of Justice, because it was clear that the House felt strongly about the matter.

The hon. Member for Scunthorpe (Nic Dakin) talked about learning from other countries. The research that is being conducted on the proposal for a cap on the total cost of credit that can be charged by high-cost lenders will include a consideration of regulation in other countries, including those that have rate caps. He talked about the idea of a real-time database, and other colleagues also picked up that subject. I think it is fair for me to inform the House that the company behind that database, Veritec, has had meetings with officials in my Department, in No. 10 and in the OFT. We are considering the matter, but I am not making any commitment now—that would obviously be quite wrong. If a decision were taken to regulate the payday market more, the experience in other countries would have to be considered further.

We are opening discussions with stakeholders on how we can increase data sharing for the benefit of consumers. We will also explore the issue of credit scoring and whether high-cost credit providers should provide data to credit reference agencies. The hon. Member for Makerfield asked about that, so it is important that I make that point.

My hon. Friend the Member for North Swindon (Justin Tomlinson) again stressed the importance of education, and he is absolutely right. We are working with the Money Advice Service and the industry to see if consumers can be helped in considering whether a credit product is right for them before they purchase it. That will play a role.

The hon. Member for Edinburgh South pressed us on payday loans, as did a number of other colleagues. I can say that we have started intensive discussions with the payday loan industry to ensure that future codes of practice contain the consumer protections that we believe are needed to address the concerns that blight the market. I have personally written to the trade associations highlighting the importance of that work and my concerns about specific issues such as continuous authority. I will also meet them during the process. Payday loan companies dipping in and out of people’s bank accounts, taking money set aside for rent and food, is simply not on, and we need the codes of practice to reflect that.

I wish to turn in more detail to debt advice. Inevitably, some people will fall into financial difficulties, and when they do, I want them to be empowered to make the right decisions for themselves about their finances, and to have access to the appropriate debt advice when they need it. The Money Advice Service will take forward the co-ordination of debt advice delivery from April 2012, and my Department has provided the necessary funds to research and develop a new multi-channel debt advice service across the UK.

The interim findings of that research have highlighted a number of key principles, which the Money Advice Service will take forward in its delivery strategy. Those principles include some critical points. For example, people should know where, when and how to access the right debt advice for them. That relates to the point about branding that the hon. Member for Makerfield mentioned. The Money Advice Service’s research shows that there should be a standard set of approved tools that are well understood and used by advisers, which will help to ensure consistent, quality responses for consumers with similar issues.

The research also suggests that digital self-help should be much more widely available and awareness of it increased. People for whom digital services are appropriate should be encouraged to use them, but of course they will not be appropriate for some people, and they can be encouraged to access existing telephone services, which must remain a key option.

Above all, face-to-face advice has to be available for service users who have particularly complex debt or who have accessibility problems with other channels. Indeed, more face-to-face outreach services need to be developed, because as we have heard in the debate, many people are unable or unwilling even to come to a citizens advice bureau but nevertheless need support. Face-to-face services need to be improved and be more quickly available, although there are already some excellent services. That is what is coming out of the research. We hope that the new model, on which I have put an awful lot of emphasis, can be in place for 2013.

As well as debt advice, people who fall into financial difficulties need access to remedies that work effectively for both them and their creditors. Before concentrating on what the Government are doing in relation to debt management companies, I should like to outline some matters on which we are proposing important action. On 7 November, I published a consultation on proposals to reform the application process for bankruptcy. Bankruptcy is an appropriate route for some people to deal with their financial difficulties, but it is apparent from earlier consultations on proposals to reform how debtors petition for their own bankruptcy that people see clear benefits in removing the court from the process while providing the necessary safeguards.

I also want to ensure that the most appropriate route is provided when bankruptcy is applied for by a third party. That means involving the courts when there is a dispute between parties on whether bankruptcy is a proper outcome. However, when there is essentially no disagreement—in other words, in the vast majority of cases—I believe a more streamlined route into bankruptcy can be found. The new process will encourage debtors and creditors to resolve their issues when possible before applying for bankruptcy.

In addition, as promised in the Government’s July response to the review, on 17 November I published a consultation on bankruptcy and its effects on the ability of the individual to access a bank account. All hon. Members would agree that a bank account is one of the most basic requirements of financial inclusion. It allows people to carry out basic financial management tasks in a simple way and can also save them money, because there are often discounts for direct debits. The concern is that bankrupts are unnecessarily excluded as a consequence of their bankruptcy. The consultation seeks evidence on that situation and on how best to remedy it.

Sadly, I am very familiar with the problems in the debt management market, but I would like to thank hon. Members who have raised their concerns and added to this debate, particularly regarding the unscrupulous behaviour of some fee-charging companies. It is worth noting that since the Office of Fair Trading compliance review in September, a total of 70 businesses have exited the debt management market—70 businesses that were failing to comply with OFT standards have gone.

As the Commercial Secretary to the Treasury and I said in July, we believe that more can be done. I am pleased to report that my officials have opened discussions with stakeholders from all sides—fee-charging companies, free-to-debtor providers, and creditors and debt advisers—to explore how a debt management protocol might work. That should help to improve standards, guide debtors towards better-quality advisers and providers, and leave no room for the rogue elements within the industry.

Hon. Members asked a range of questions on the powers of the OFT in tackling debt advice and management. It is important to remember that we have a regulation—the OFT has the right to charge debt management companies for the credit licence, without which they cannot operate. The OFT manages that and will soon publish revised guidance for debt management companies, which we expect early in the new year. Debt management companies should comply with the guidance. If they do not, they are in danger of the OFT revoking their licence or fining them. We need to consider that and to build on it. Indeed, many of the responses to the consultation on whether we should change the regime for consumer credit regulation say that the OFT works well. However, people would like it to do more and to have more powers. Those responses were echoed on both sides of the House during the debate. I obviously cannot pre-empt what the Government will say in response to the consultation, so I am limited in what I can specify today, but I refer hon. Members to the consultation, because it is an important part of the way forward.

I shall try to rattle through a few other points that were made on the OFT in the short time that remains. Hon. Members quite rightly talked about how social media—Google, Twitter, Facebook and so on—are being abused by a number of those companies. The OFT consulted on that earlier this year and has revised its guidance, so it now states:

“Licensees who advertise or sell online or by email must comply with the Electronic Commerce…Directive”

It also states:

“Before using internet based and social media marketing, licensees should consider whether they can exercise adequate control over its content…The OFT considers that search engine sponsored links and online messaging forums which limit the number of characters are unlikely to be an appropriate means of providing…balanced and adequate information.”

That is typical technocratic language to say that the OFT will act in this area. My hon. Friend the Member for East Hampshire raised the point about the social responsibility of Google, and I hope that it listens and responds to his remarks.

On cold calling, the OFT’s revised guidance on credit brokerage and debt management sets out a number of specific practices relating to cold calling of consumers that it considers unfair or improper business practice.

On advertising, the OFT has taken a market-facing approach in the past few years to tackle bad practice in the market. For example, it took well publicised action against firms that sent misleading IVA mailings to customers or used lookalike websites to mislead customers into believing that they were charity-based sources of free debt advice.

I have rattled through a few of the issues. What I wanted to convey to hon. Members is that we are focused on those and that we are listening both to this House and to people responding to our consultation to see what we need to do to improve our current regulatory regime.

I am extremely grateful to the House and to the Backbench Business Committee for allowing this debate. I know that a number of Members—the hon. Members for Stockton North, for Scunthorpe, for Makerfield and my hon. Friend the Member for Chatham and Aylesford—helped to precipitate the debate. I hope that it has made a major contribution to our thinking and to the thinking of those who are part of this process.