Ian Lavery
Main Page: Ian Lavery (Labour - Blyth and Ashington)(13 years, 6 months ago)
Commons ChamberI too congratulate my hon. Friend the Member for Walthamstow (Stella Creasy) on bringing this important issue to the Floor of the House. I welcome the opportunity to participate in this debate today. There can be no doubt that there is a real need to tackle the uncompetitive nature of this market and protect individuals and families from excessive interest rates and charges by increasing access to affordable credit. The Consumer Credit (Regulation and Advice) Bill will provide an opportunity to make progress on these matters.
Like many other areas of the UK, my constituency of Wansbeck is suffering greatly from the effects of the worldwide global recession. Since the start of the recession, mainstream lenders such as high street banks have been much less willing to lend money. It is estimated that approximately 5 million to 7 million people in Britain are denied credit either because they do not have a bank account or because they have no credit history. This leaves more and more people in Wansbeck and beyond with only the option of unsecured lending such as payday, doorstep and hire purchase lenders. It is estimated that more than 1.2 million people use the payday lending market—a staggering fourfold increase since the start of the recession—and more than 3 million use the home credit market. Furthermore, rising unemployment, housing costs and VAT could leave numerous families struggling to make ends meet, which would add to the problems they face.
However, it is still relatively easy for anyone to run up substantial debts, and tragically people end up with debts they cannot deal with or service. It was recently reported that the people of the United Kingdom are well over £1 trillion in personal debt, and personal insolvency in the UK has reached record levels.
I would prefer not to, as I have only five minutes.
As always, the most vulnerable members of society are hit the hardest, and people on low incomes or in receipt of benefits are left to the mercy of non-mainstream loans— payday, home credit or pawnbroking. Currently, six lenders account for 90% of the home credit market and there is little competition to drive interest rates down. The lack of competition keeps rates artificially high, with the most vulnerable having to pay the price—literally. The APR for payday lenders often begins at 600% and can escalate to 2,500% or more. Home credit lenders, who make home visits in order to collect repayments for their short-term loans, can charge £82 in interest and collection charges for every £100 lent.
It is not surprising that families turn to illegal loan sharks for help to tackle their immediate financial problems. At this stage it is worth remembering that the coalition Government’s solution to the heinous problems with loan sharks in the north-east was to scrap the north-east illegal money lending team. In addition, the coalition shows no appetite to clamp down on excessive interest rates and loan costs—it is clearly out of touch with ordinary people and their problems.
In Wansbeck, the local citizens advice bureau is doing its best to provide good quality debt advice services, but the withdrawal of finance and the reduction in staff numbers are causing real problems. There are some 900 clients in Wansbeck alone, dealing with £10 million of debt. The casework is increasing as the manpower reduces.
If we are to help and protect my constituents and others like them we need to make progress on two fronts. We have to tackle both illegal and legal loan sharking. At the same time, we need to increase access to other, more affordable forms of credit. We need to improve access to credit unions in Britain, but credit unions in Wansbeck have had their funding reduced. I remind the Deputy Prime Minister and his fellow Ministers that they signed an early-day motion in 2005 that called for action on interest rates charged by doorstep lenders, but they have taken no action now that they are in government and in a position to do so.