Unscrupulous Lenders

Ed Davey Excerpts

Monday 10th January 2011 Commons Chamber

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

I thank the hon. Member for Halton (Derek Twigg) for securing this debate because it gives me, as a Minister, the chance to deal with some of the detailed questions that he has put to the House and to talk about the general issue, which is a very serious one. He is right to say that it affects some of the most vulnerable in our society, on whom these illegal loan sharks prey. We as a Government are committed to building on the good work of the previous Government to ensure that we have people ready to tackle those criminals.

The hon. Gentleman began his remarks with the tragic story of his constituent, Brian Shields, who committed suicide under the pressure of loans and loan sharks. May I send my condolences to his constituent’s family and pay tribute to the work that they have done by campaigning on this issue? They have clearly made a very significant contribution.

The story that the hon. Gentleman told about Paul Nicholson, who was a loan shark acting in his constituency, shows the significance of this crime and how devastating it can be for individuals and communities. This individual preyed on vulnerable consumers in the hon. Gentleman’s constituency. When he was found guilty of these crimes, he was ordered to pay back almost £1 million and sentenced to an indefinite term. The judge, rightly, was very strong in his remarks about the appalling way in which this individual had behaved. That example shows the need for vigilance and the need to invest in this area.

The hon. Gentleman asked us to do more. I am pleased, however, that we were able to announce that we are maintaining funding for illegal moneylending teams so that next year there will be same rate of funding as this year. Given the levels of cutbacks that we are seeing in many programmes in my Department and across the Government, that is testament to the significance that we give to this project and the value that we place on the excellent work done by the illegal moneylending teams who have been operating so well.

The hon. Gentleman raised a number of questions about our policy in respect of illegal moneylending teams, and I want to address those directly before moving on to more general remarks. I am glad that he welcomed the investment we are making, although he asked what assessment we had made of the need and whether more money should be provided to ensure that that need was addressed. I have to tell him that—

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Motion made, and Question proposed, That this House do now adjourn.—(Angela Watkinson.)

[Mr Davey]

The evidence from the illegal moneylending teams shows that the work needs to continue. It would, of course, be nice to increase the work, because it is clearly effective. However, I refer the hon. Gentleman to the evaluation of the illegal moneylending project by Policis, which was published in October 2010. It concluded that the project had made an excellent start to tackling illegal moneylending, but that we needed to reform the way in which illegal moneylending teams were set up. It was very clear that larger teams that covered a wider operational area were more successful than smaller ones. That independent report, which was set up by the previous Government, recommended that the whole project should adopt that model. Although I understand the concerns of, for example, the teams in the north- east, which the hon. Gentleman repeated, I refer him and the people who have those concerns to the report. It stated that we would get better value for money and be operationally more successful if we restructured in the way that we propose. No way is this some sort of cutback. The aim is to make the teams more effective in tackling the problem.

We will also ensure that the project retains local understanding and presence. I hope that gives some reassurance to the hon. Gentleman and his colleagues. Financial inclusion officers, who can direct people to advice and support, will continue to be based locally. We are trying to get the balance between the local and national issues that he rightly talked about. I think that we can get the best value for money and make the teams more operationally effective, while still getting the important local information, under the structure that we propose.

The number of job losses owing to the closure of regional teams will be relatively small. Our aim is to protect front-line enforcement staff numbers as far as possible and for many staff to be transferred to the Birmingham team.

I do not agree with the idea that having a team that covers the whole of England, as well as ones that cover Wales and Scotland, will prevent the team from paying attention to small-scale illegal lenders and will mean that it focuses resources only on large-scale investigations. The project aims to have an impact across the country, and to learn the lessons of recent years. We will continue to tackle community-based loan sharks and those that operate across wider areas. There will still be the hotline number, 0300 555 2222, that people can ring and text for support and help.

The project will play a central role in our attempt to tackle this problem. I would welcome the chance to have a wider debate on this subject, should one of the hon. Gentleman’s colleagues secure it from you, Mr Speaker, because I believe that we can achieve consensus in this area. We can pay tribute to the previous Government, which initiated the project. In return, I hope that this Government will get some credit for continuing the level of funding and for building on the independent report that the previous Government commissioned.

The hon. Gentleman asked about debt and money advice, which has been raised by Citizens Advice and others. The consideration of future funding is still being worked through as the implications of the spending review are analysed, and we are waiting for Her Majesty’s Treasury to come to its final conclusions, which I am sure will be announced in due course.

The hon. Gentleman asked whether there should be a review of criminal offences in relation to suicide. He will understand that that is a matter for Ministers in the Ministry of Justice, but I am sure that his comments will be brought to their attention.

I am particularly delighted that the hon. Gentleman has given me this opportunity to discuss this subject, because we initiated the consumer credit and personal insolvency review last year and hope soon to begin the process of analysing all the responses that we have received. We thought it necessary to step back and examine the matter because consumer debt is such a problem. He has highlighted one extreme—unscrupulous and illegal moneylenders—and noted how damaging it can be, but I am sure that he is aware that when one looks across the landscape of debt, one sees many different problems for individuals and families.

The numbers involved are huge, and they should worry us all. Outstanding borrowing by individuals stands at about £1.46 trillion, having more than doubled in the past 10 years. About 12 million households, just under half of all the households in the UK, have some type of unsecured debt, of an average amount of just over £10,000. We can examine the changes in more detail. In the third quarter of 2009, £44 billion was lent to UK consumers in unsecured credit, compared with about £9 billion in the same period in 1987. If we allow for inflation, that is an increase of nearly 250%. The significance of credit and debt in our society and our economy is massive, and it has created problems that previous Governments and previous generations did not have to deal with.

Let me be absolutely clear that borrowing, in itself, is not bad. We should welcome the freedom to access credit, and credit liberalisation has been a force for good in many ways. It is excessive borrowing and irresponsible lending that causes problems, and we need to analyse it carefully. When we published the review document, I was keen, first, to examine what we might call the life-cycle of debt, starting at the point at which the decision to take on debt is made, and consider how consumers and lenders could make better borrowing and lending decisions. If we can improve the financial capability of borrowers and achieve a new culture of responsible lending, that will improve initial decision making.

Secondly, I was keen to ensure that consumers and lenders managed their existing borrowing in a way that was much more sustainable in the long term. We want consumers to be more proactive in managing their borrowing, and thus better prepared to deal with the uncertainties that life can bring upon them, whether it be illness, unemployment or the other problems that can make borrowing arrangements and debt so damaging.

Thirdly, I wanted to examine situations in which credit arrangements go wrong and people fall into difficulties, to ensure that people are signposted more effectively to the best possible debt advice. There is clear evidence that people with debt problems turn to the first person they come across. If that person, organisation or company is not scrupulous, they can get advice from exactly the wrong type of people. I know that the previous Government were concerned about that. There is a mirror image of the unscrupulous lenders about whom the hon. Gentleman talked—debt advice organisations that are almost as bad as loan sharks. We need to ensure that we tackle that problem, especially as so many organisations, not least citizens advice bureaux, offer exemplary debt advice services.

I end by reiterating the hon. Gentleman’s comments about the illegal moneylending teams. It was a major theme of his speech, and I want basically to agree with him. Their success to date has meant that they have arrested more than 500 illegal moneylenders, written off more than £37 million of illegal debt, which would otherwise have had to be paid back, helped more than 16,000 victims of loan sharks and seized more than £1.3 million in cash.

That reminds me of another question, which I have not yet answered. The hon. Gentleman asked whether the new funding that we announced would come from the cash that was seized from illegal moneylenders. I am afraid that the amount of money seized from illegal moneylenders is much smaller than the sum that we have announced. As he knows from the Proceeds of Crime Act 2002, that money has to go back to the Treasury anyway, so there is no hypothecation or earmarking. We have not tried to make some behind-the-scenes saving—the money that we have announced is genuinely new, and I am glad that he welcomes it.

I commend the work of all the teams. I appreciate that we are asking them to restructure, but I hope that they will examine the independent evaluation and realise that we are doing that with the benefit of analysing and valuing their excellent work in helping the victims of loan sharks, and in helping to tackle the scourge of loan sharks in our communities.

I assure the House that the Government appreciate concerns about the availability and the consequences of consumer credit. Used sensibly and responsibly, credit is a tool for coping with life’s uncertainties, but we need to gather the evidence before we introduce new rules, or else risk unintended consequences. The review that we have initiated constitutes a strategic approach to the issue, although we have already been able to act against unscrupulous lenders.

Question put and agreed to.