Debt Advice and Debt Management

Debate between Gordon Banks and Yvonne Fovargue

Thursday 1st December 2011 Commons Chamber

[Yvonne Fovargue]

I agree, but the disadvantages of the payday loan industry are greater than those in the home credit market, which is easier to regulate, because we can target it. The home credit market has been here for a long time—we all know the Provvy—and when I worked at a CAB, we could see when lenders were going around an estate, and we could talk to those consumers about that. If people get loans on the internet, or from high-street shops or over the phone, that is much more difficult to control.

We should consider a real-time database, because there is a lot of interesting data that could be gleaned from it. The regulator could very quickly look at companies acting illegally as a result of the information on the database. I recommend, too, the Smith Institute publication that was launched today, which is entitled, “A Nation Living On The Never-Never”. It includes a chapter by Damon Gibbons on learning from other countries. I agree: we are not the US or France, but there are things that we can learn, particularly because regulation is different in different states, so quite a lot of comparisons can be made.

That leads me into the need for debt advice, which should be free, independent and quality marked; should be funded in a sustainable way; and should meet the needs of all consumers, including the most vulnerable. Anyone who is in debt can be vulnerable. One of the most difficult cases that I saw involved an accountant, who had reached the stage where they could not open an envelope or answer the telephone. They needed the initial face-to-face advice so that someone could talk them through the situation and explain that they were not alone. They could then be referred to a telephone service and deal with things themselves, but the initial face-to-face advice had to be there.

[Gordon Banks]

My hon. Friend makes a forceful point. When a person is desperate and sitting at their computer searching for a solution, at that point they will embrace with open arms any organisation that responds to say that it can solve their problems, and they will jump into something that they might well regret. That is why the face-to-face advice is so important.

[Yvonne Fovargue]

I absolutely agree. My hon. Friend the Member for Stockton North had a point when he said that we need to look at Google. When someone googles “citizens advice debt advice”, they get the debt management companies, not Citizens Advice, because those companies can afford to pay for the ranking.

Finding debt advice is not like finding a plumber. It is not possible to go into the pub and say, “I’m in debt. Do you know a good company that can help me?” That just does not happen, because people are ashamed to admit that they are in debt. They go on the internet in the middle of the night or look through telephone books because they want the most anonymous way of finding help. That is why they can fall prey to dodgy debt management companies that do not offer the full range of debt solutions. I would probably need another hour to explain the complexity of the debt solutions and the need for a coherent system. I urge the Government to bring forward plans to implement a statutory debt management plan.

Debt management companies sometimes charge up-front fees, as has been said, and sometimes take the money before referring customers to not-for-profit providers. For the average debt of £30,000, the fees are £6,000 on average, which means the client takes a further 18 months to pay it off and the creditor has to wait a further 18 months. It is not good for either party.

Often people are unaware of the free alternatives, which is why I introduced a ten-minute rule Bill to try to level the playing field for not-for-profit providers, which put all their resources into providing advice and none of it into advertising. Since I introduced the Bill, I have received many more examples from across the country of companies ripping off clients—persuading them to take out secured loans or paying the creditors only small amounts, and then going into liquidation, taking the rest of the money. People were giving them continuous authority to take the money from their bank account, which can go on long after the debt should have been paid. However, there is currently no power to suspend such companies, even though the Office of Fair Trading knows that there is considerable consumer detriment. It can take up to two years to revoke a credit licence, because there is no limit on the number of appeals, and the short-term loans industry and fee-charging debt management companies rely on that. For some of them, their business model is to make a profit in two years and then go.

The landscape has completely changed for consumers. Both in the UK and internationally, self-regulation has been proven not to work. I realise that there is a one-in, one-out policy for regulation, but in this instance I urge the Minister to look holistically at the sector. There are so many new challenges and problems that it needs to be treated as a whole new area, rather than as an area that has been around for a long time. It is so different from even five years ago. I believe that we need to provide the necessary adequate regulations and enforcement, however many it takes, to ensure that our vulnerable consumers are not ripped off by the sharks who are profiting from desperation and despair.

Debt Management Plans

Debate between Gordon Banks and Yvonne Fovargue

Tuesday 5th July 2011 Westminster Hall

[Yvonne Fovargue (Makerfield) (Lab)]

I congratulate my hon. Friend the Member for Scunthorpe (Nic Dakin) on securing this debate, which we have needed for some time. I confirm that I believe that creditors must be paid, but the practices of some debt management companies do not encourage that. They load the fees up front, and recoup all their charges in the first two years. They provide no encouragement for people to carry on with a sensible plan, because the up-front loading discourages people from continuing after that period, and frankly they do not worry about that, because those two years are where they make their money. They cannot offer the full range of solutions, and are not allowed to do so, because only authorised providers can produce debt relief orders, and in the main those providers are citizens advice bureaux.

There was great concern last year when the financial inclusion fund was due to finish. Fee-paying debt-management companies were circling like sharks, thinking, “We’ll be the only option, and debt advice will not be available.” I urge the Government to consider a financial inclusion fund and free debt advice, because that is all that will stop some debt management companies.

I am worried about the link between such companies and high-cost lenders, some of which now have another arm: a debt management company. They get people into debt, charge them for that, and then put them through to their own debt management company, which will charge to get people out of the debt that it put them into in the first place. That is not acceptable. Regulation was introduced in the United States and Australia, which are not countries noted for over-regulation, and it has worked. That is why there is a proliferation of debt management companies here.

[Gordon Banks]

I suggest that my hon. Friend ask the Minister to look over the border at Scotland, where there is a system that works much better than that in the rest of the UK.