Ed Davey
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The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)
I congratulate the hon. Member for Scunthorpe (Nic Dakin) on securing this debate. I was pleased that he did, and it is good that so many hon. Members have contributed to it and aired their concerns. The Government are acutely aware of those concerns, and we share many of them. It is a sign of our desire to protect vulnerable individuals that debt management issues were a major part of the questions that we asked as part of the joint Treasury and Department for Business, Innovation and Skills call for evidence. The “Consumer Credit and Personal Insolvency Review” was published last year, and covers all aspects of the consumer credit life cycle, including what happens when things go wrong.
Hon. Members will appreciate that it is difficult to obtain a precise picture of the debt management industry, even to the extent of obtaining accurate figures for the number of plans in place. Some of the concerns that we have heard recognise that lack of information. I cannot give details today, but I am keen to improve the quality of information about the industry. I will say more about that when we publish our response to the call for evidence, which will be soon.
Despite the constraints, improvements have recently been made to protect the most vulnerable debtors. By extending the eligibility criteria for debt relief orders, we have enabled more of the most vulnerable people to find a way out of unsustainable debt. Some safeguards are already in place, although I understand that several of my colleagues would like us to go further, and I will go on to talk about that. Providers of debt management plans are required to hold a consumer credit licence, and holders of those licences are monitored by the Office of Fair Trading. The OFT has strong enforcement powers. Following its compliance review last year, it issued warnings against 129 companies, of which 43 have since left the market and investigatory work is ongoing in many other cases. The OFT is determined to see that work through as soon as possible.
The OFT has recognised the need to improve its guidance, and it recently published proposed revised guidance for debt management plans. That guidance sets out the standards that the OFT will expect of debt management businesses, and makes it clear that, among other things, such businesses must be fully transparent about the service on offer and the fees charged; explain to consumers the risks and benefits of each proposed solution; not use misleading names or advertising, including misleading web-based adverts; and ensure that the advice provided is in the best interests of customers. Any business that fails to adhere to that guidance can expect strong action to be taken against it, including, where appropriate, the removal of its licence. The industry has recognised the need to improve its practices, and it is welcome that a number of debt management organisations have joined the Debt Managers Standards Association, which, as the OFT has recognised, is trying to improve standards.
What more needs to be done? The Government believe strongly that those struggling with debt must be assured that they will receive the best advice and be directed to the solution most suitable for their needs.
Mr Davey
I am concerned about the time; perhaps I can make a little more progress and then give way to the hon. Gentleman.
Free and impartial advice is available for people in difficulty. We need to make sure that such advice is well publicised and that vulnerable people know where to find it and can avoid unscrupulous businesses that may seek to take advantage of them. We know about Citizens Advice, and I was pleased that the hon. Member for Scunthorpe mentioned the Consumer Credit Counselling Service, which is a fantastic organisation. He also, quite rightly, mentioned Payplan. We must ensure that people are aware that they can get quality advice for free. That is essential.
Hon. Members have expressed concern that the aim of some fee-charging debt management companies is to make money for themselves, rather than to ensure that an individual finds the appropriate solution for their circumstances. We have also heard, both today and on previous occasions, that some individuals who enter a debt management plan find that they emerge from that plan in a worse position. Clearly, that cannot be right.
I am concerned that those who are in a vulnerable position might seize on an advert that offers what appears to be an easy way out of their difficulties. If they are told that the organisation that they approach will deal with all their debt problems, they may not ask about the likely costs and that will create difficulties. The answer to that complex problem does not necessarily lie in more regulation. We need to empower debtors to find the right information, access the right sources of impartial advice, and find the solution that best meets their needs. We confirmed some time ago that we will fund the face-to-face debt advice project for a further year, while work is done to move the provision of such advice to a more sustainable footing. As my hon. Friend the Financial Secretary to the Treasury said yesterday in the House,
“it is the intention that the Money Advice Service—which is funded by the financial services industry—will take on that work.”—[Official Report, 4 July 2011; Vol. 530, c. 1254.]
It is important that free debt advice is available through Citizens Advice, the Consumer Credit Counselling Service and other quality, free debt advice services.
I want to look at what more can be done to ensure public awareness of reputable debt advice sources, whether online, over the telephone or face to face. Everyone involved in the debate—creditors, debt advice agencies and providers—should be involved in finding the best way forward. When we publish our response to the call for evidence, we will make proposals designed to foster that collaborative approach and help people with unsustainable debts to get the help and advice they need to take control of their lives once more.
Gordon Banks
The Minister talks about ensuring that creditors get the best advice. Many of the major lenders fund debt management processes through Payplan, for example. Is there any mileage in making the main funders of an organisation such as Payplan, which could be the major creditor of someone entering a debt management plan, have a role in guiding someone from a fee-paying to a non-fee-paying organisation?
Mr Davey
The hon. Gentleman makes an interesting point. It is surprising that many public bodies—whether local authorities, utilities or lenders—do not make those who cannot pay their bills or are in debt as aware as possible of quality, free advice services. We need to talk to those organisations because raising awareness is critical.
Mr Davey
I will give way in a moment to the hon. Lady; she made a very valuable contribution.
When people are in debt, that can affect their health and there could even be mental health consequences. We must ensure that people do not end up in the clutches of a company whose advert they heard and do not recognise that there are free, quality advice services. We must deal with that issue.
Yvonne Fovargue
Does the Minister accept that we must not only make people aware of the free agencies available, but ensure that those agencies have quick, available appointments? When somebody wants to get out of debt, they do not want to wait six weeks for an appointment. That is where the debt management plans win; they say, “We’ll deal with you immediately.”
Mr Davey
The hon. Lady makes a vital point. We must ensure that people are aware of all the different options. Online options are increasingly being taken up; they are effective and can be accessed 24/7. There is a high usage of online helplines, and if people are vulnerable or ill, they should have access to quick and quality face-to-face advice. I agree with the hon. Lady.
We have heard a number of ideas during the debate, and we will reflect on them, just as we have reflected during the call for evidence. We have heard interesting ideas such as that from my hon. Friend the Member for East Hampshire (Damian Hinds) about whether search engine providers ought to think about their social responsibilities when people search for advice. There are issues about audits and so on.
Mark Durkan (Foyle) (SDLP)
May I take the Minister back to when he referred to the more robust guidelines that the OFT will produce? He said that the OFT will move against firms that breach those guidelines, possibly by withdrawing their licences where appropriate. Who will determine when such action is appropriate? What will be the exact criteria? If those decisions are open to challenge, will the OFT end up having a paper power that it never exercises? The firm from which the OFT might wish to withdraw a licence will always have deep pockets, and the OFT might feel that a challenge is not worth its while.
Mr Davey
The OFT is the regulator. If it deems an organisation to have breached the guidance, it can act. Indeed, it has acted. Some 43 out of the 129 companies that it identified and investigated have left the market. The idea that it is a regulator that does not take action or track companies down if they do not behave properly is not correct. That does not mean, however, that we cannot improve the overall framework.
When I met the hon. Member for Scunthorpe and a number of his colleagues from the all-party group on debt and personal finance—which, I should say, is doing fantastic work—we had a number of discussions, some of which were reflected in the debate. We share a lot of the concerns that have been raised today. I cannot prejudge the response to the call for evidence, which will arrive soon, but I share the views of colleagues and we will take action.