Consumer Credit and Debt Management

Debate between Ian Murray and Helen Goodman

Thursday 3rd February 2011 Commons Chamber

[Ian Murray (Edinburgh South) (Lab)]

I, too, congratulate my hon. Friend the Member for Walthamstow (Stella Creasy). Since we became Members, she has been a stalwart campaigner on the issue, and to have a political issue of such like trending on Twitter—if Government Members would like to look up that term later, they are very welcome to—is a great credit to the campaign that she has run and to her for representing not only her constituents, but the constituents of all of us.

Many people on both sides of the House support the measure, and I was interested to hear the hon. Member for Chippenham (Duncan Hames), who is in his place, bring to the Chamber his great deal of experience on the issue. I am disappointed that he is going to put that all to the back of his mind when wandering into the Lobby this afternoon, but I hope that in the next hour he will change his mind and support what is one of the most valuable things that we can do in the Chamber.

The issue affects many of my constituents and constituents throughout the country. Debt breaks up families, demolishes relationships and, all too often, leads to suicide and death, something that has not been highlighted this afternoon. Rarely are high-interest services used as a one-off; the spiral of debt, through chasing the tail of debt as others have said, can lead to families throughout the country becoming caught in a debt trap and, all too often, a death trap.

I have been struck by the APR and total credit costs that we have heard about this afternoon. My hon. Friend the Member for Glasgow Central (Anas Sarwar), who is not in his place, spoke about 4,000% APR, and although I appreciate that the motion is not just about capping APRs, but about the total cost of credit, I think that such figures should send a shiver down the spine of every Member in the Chamber.

Moreover, the hon. Member for North Swindon (Justin Tomlinson) explained that a mere 17.9% APR can take up to 40 years to pay off if someone makes just the minimum payment, so even small APRs, which attract people to credit, can have significant consequences if there is no education to resolve the issue.

Short-term credit companies advertise aggressively. We just have to walk down our local shopping streets to see posters, advertising boards and window displays publicising payday loans and credit. Many of us know about such aggressive advertising, and Members have already described how lenders can create relationships in a person’s own living room, but the main concern about advertising is that many people look for authorities on the issue and then give the adverts credence because of them. Indeed, adverts for payday loans with APRs of almost 3,000% have been carried on the website of the Department for Communities and Local Government—an authority to which people might look and say, “If they’re saying it, this must be acceptable.”

Rising unemployment, housing costs and the VAT increase could leave families and ordinary people in a far worse situation, pushing them towards higher credit costs when paying for birthdays, Christmas, household repairs or just everyday living.

[Helen Goodman]

My hon. Friend mentioned the significance of the personal relationships that firms build up with borrowers. Does he agree that the network of people who are on incentivised contracts with the companies, and incentivised to maintain people in debt, is one of the biggest market barriers to the conventional banks coming into the sector?

[Ian Murray]

I am grateful to my hon. Friend for mentioning that. One would think we had rehearsed it, because I was about to go on to say exactly that. The chief executive of the country’s largest payday lender, Peter Crook, recently said that he was likely to see a large increase in his target audience owing to the rising levels of unemployment. That highlights the relationships that are created not only to keep people in the spiral of debt but to keep the people who are pushing the debt in the spiral of commissions and maintaining their own lifestyles. That shows that strict regulation is required, not a code of conduct that could easily be dismissed by some of the more unscrupulous lenders. It also shows that those who are least able to pay are being charged the most at a time when they are least able to pay for this kind of credit.

Of course, capping the total cost of credit is not an idea that has been plucked out of the air. As my hon. Friend the Member for Walthamstow demonstrated, there is evidence from around the world showing that it is perfectly possible to regulate the payday and home credit markets without adverse effects—all it takes is the political will to do so. There are undoubtedly detailed issues that would have to be resolved, but we are elected to this House to find solutions to problems, not to find problems to stop solutions, which is how I read the well-intentioned amendment. The political will is in the Chamber today to do something about this, and we should all grasp the moment and do what is right for our constituents.