Affordable Credit for People on Low Incomes

James Cartlidge Excerpts

Wednesday 5th December 2018 Westminster Hall

[Frank Field]

I totally agree with that. I suggest that there is no silver bullet. Clearly, credit unions have a part to play, but they are not as thriving in Birkenhead as they are in others parts of the country. Therefore, we need a whole strategy of policies, so that the geographical chance of life neither protects people nor leaves them vulnerable and unprotected. If someone has a really good, strong credit union and they are a member of it, that is good news, but if there is no credit union, or if their pattern of behaviour does not easily fit into what the credit union requires, it is difficult for them. I want to draw the Minister on that later in the debate.

The leaflets that are now going out in our constituencies claim that there are no late payment fees. I am pleased to be able to say that, unlike other companies that lend people money when they are extremely vulnerable, there is no evidence at all that the people coming for repayment come with baseball bats to enforce that repayment. But of course, Provident has another strategy, so it does not have to do that. To use another example, one of the volunteers in the Feeding Britain network tells us that one of her friends who got close to paying off her debt with Provident was immediately offered another loan. If someone has problems repaying, they are offered other loans, so the loans mount up and become very substantial, and if they are towards the end, Provident tries to make it part of their working-class economy that they should have loans, by suggesting that they should take another loan.

I thought that, before I come to what I would like to see as part of the Government’s strategy, I would talk about the hard sell. One mother went on to the website to see what the loans prospects were. Having merely gone on to the website, she said that she was being called up eight times a day until she took out a loan. There is quite a hard sell here. As well as picking on areas that are vulnerable because universal credit is being rolled out and picking on the vulnerable areas across the country in periods such as Christmas and the summer holidays, there is a real danger that merely inquiring about a loan means that people then get the hard sell.

What about the strivers? For example, we had two people in work and two children who borrowed £100 from Birkenhead, and they were anxious about paying bills and feeding those children. They ended up having to pay back a few pennies less than £500. We have also seen the Scarlet Pimpernel effect in Birkenhead. If someone googles loans, Google throws up, in the first instance, those loan companies that are likely to cost them the most to borrow from. Will the Minister look at whether there is a case for saying that Google should display what we could all agree are the best companies to deal with, not those with the highest charges?

[James Cartlidge (South Suffolk) (Con)]

Will the right hon. Gentleman give way?

[Frank Field]

I will happily give way to an ex-member of the Select Committee on Work and Pensions.

[James Cartlidge]

I very much enjoyed serving, up to the time of the general election, on the Select Committee chaired by the right hon. Gentleman. He has great passion in this area and has just made a really interesting point. What would concern me about online advertising is this. Probably these companies are simply purchasing through the Google Ads algorithm; I imagine that there is very little way for them to have the sort of control described, but it is an extremely good point that the companies charging the most interest will have the biggest budgets to pay for Google ads and so on, which almost inevitably means that they will come near the top. We should look at that; it is a very good point.

[Frank Field]

That is a really good point, and the Minister is nodding, so I know that we are going to get action on it. I am immensely grateful for that intervention.

Let me take another website—Doorstep Loans in Birkenhead. It aims specifically at single parents. It says, “We understand your position. We can help you through a loan.” It says to those who are unemployed, “We understand your position and the particular problems you have. What about a loan from us to help there?” It says to those with a bad credit score, “What about a loan to you?”, knowing that they cannot get one from elsewhere. Those with disabilities are also lined up for special treatment.

Let me switch to Leicester, which has also given us some information. One pensioner took out a loan to help to buy Christmas presents. She is now repaying £100 a month for that loan. That is hardly a good prospect for her—it is a very large part of her pension. Derbyshire, too, shows a really worrying trend. Provident went to one of those houses that are known to have young people in supported accommodation, who are very vulnerable, and managed to sign up every person in the house for a minimum of a £100 loan.

Putting fires out is part of the Minister’s job, but so is thinking creatively about the future, as he has always done on Feeding Birkenhead, so may I put before him the idea of a citizens’ bank? It would not be a silver bullet; it would be part of many other things. If we had asked poor people to help to design universal credit, none of them would have said, “I work to a five-week month or a four-week month for payments.” They would have said, “This benefit needs to be designed for me, which means daily payment or weekly payment.” I very much hope that we could take things a stage further and include poor people in designing the bank, so that it would be a bank that they wanted. I hope that we can pick up the hon. Gentleman’s idea, which was in the Budget, about interest-free loans. I hope that we could sign up the Department for Work and Pensions so that users of the bank would make agreements for loans that they paid back in a manageable way—paid back, with their agreement, from benefit—so that there would be a minimum element of bad debt.

As we all know, Wonga said that it had to charge 5,000% because of the bad loans that it had. It had many bad loans precisely because it was charging 5,000%. I think that if we could eliminate from the system people who cannot pay and the few who will not pay, we would have a very different, and viable, model. My plea to the Minister today is this. Might people who are interested be able to come and talk to him further on the idea that I have described? Might we also not exempt the banks from their responsibilities? Many of my constituents have problems because of the way that the banks behave. The situation is pretty bad: the banks give large sums of money—thank God—to their foundations, and those foundations give out money to projects to undo some of the damage that the banks themselves cause. I therefore hope that this is the opening of another chapter on how we get decent banking systems that fit the moral economy of life for working-class people, rather than roughing them up.

--- Later in debate ---

[John Glen]

Absolutely. I really want to make progress on the issue during my time as Economic Secretary, and in my response I will draw attention to some of the measures that have been taken.

I also had the pleasure of working with the right hon. Gentleman on the Select Committee. The assiduous way that he has pursued the challenges that people on low incomes face is legendary across the House. The whole House admires his efforts.

I want to get to the heart of the matter. The right hon. Gentleman has raised a number of issues about the conduct of Provident, as have five other hon. Members. We also had a conversation earlier this week. I recognise that he sees a citizens bank as playing two roles—first, ensuring that the poorest members of society can access core banking services, and secondly, providing credit to those people to help them to smooth their income, spread costs over time and cope with unexpected financial shocks. I will address each of those in turn.

I will set out how the progress that the Government have made on ensuring access to core financial services such as bank accounts has been achieved. The nine largest personal current account providers in the UK are legally required to offer a basic bank account to customers who are unbanked. Those accounts must be fee-free and must not have an overdraft facility.

The right hon. Gentleman drew attention to the key issue of the need to access affordable credit. The Government’s vision is for a well-functioning and sustainable consumer credit market that can responsibly meet the needs of all consumers. I think there is some agreement on that vision on both sides of the House.

I recognise that we face a playing field that is not level. My hon. Friend the Member for South Suffolk (James Cartlidge) and other hon. Members raised the point about advertising budgets, which is why one of the Budget announcements seeks to tackle the barriers faced by key partners such as housing associations to referring people to sources of affordable credit. The default setting is to find a better option than some of those that can be found on Google.

[James Cartlidge]

Has the Minister considered speaking to Google and other companies about that? It is a good point that it is very difficult to police the robot algorithm that sets up their adverts. I do not see how he can do that unless he speaks to the companies themselves.

[John Glen]

I am happy to take on that suggestion. I will look into what we can do as part of the challenge we also set in the Budget to introduce technical solutions to try to level that playing field and to make community development financial institutions such as Scotcash, which I visited in Glasgow in September, more accessible earlier in that process.

On Financial Conduct Authority regulation, I will try to address the points raised by the hon. Member for Walthamstow (Stella Creasy), who has raised the matter in the House previously. There was a review in May, although she does not agree with all its conclusions. Since the review, I have had more conversations about Amigo Loans and other issues, such as what can be done to monitor and to provide the evidence. In the interests of responding to the right hon. Member for Birkenhead, I will not carry on, but I do not want to be flippant about the serious concerns of the hon. Member for Walthamstow.

The FCA governs the rules about the provision of credit and is responsible for the regulation of consumer credit. It is a robust regulator, which I always encourage to be even more robust. It has the tools to take swift, effective action against improper practices. My regular dialogue with the chief executive, Andrew Bailey, and the director of strategy and competition, Christopher Woolard, covers that topic, and I know that high-cost credit is a priority for them.

The right hon. Gentleman specifically highlighted a number of worrying examples of high-cost credit lenders in Birkenhead. I listened with concern and serious dismay to the impact of those practices on vulnerable consumers. I hope the action that the FCA is undertaking in relation to lenders, as part of its broader review of the high-cost credit market, will have some impact.

The right hon. Gentleman mentioned Provident. The FCA is consulting on new rules and guidance specifically for home-collected credit firms. I will draw its chief executive’s attention to this debate. The rules will include requirements for firms to clearly explain the costs of a new loan compared with the cost of refinancing an existing one, and guidance stating that firms cannot visit customers to offer new loans without an explicit request from the customer.

The provision of affordable credit is a multifaceted problem and there is no single solution to overcome it. It is not sufficient to simply tighten regulation for high-cost lenders. Therefore the Government are desperately keen, and have taken steps, to ensure that low-income consumers can access safe, affordable and sustainable credit. In our civil society strategy, we announced that £55 million of funding from dormant assets would be directed towards addressing the problem of access to affordable credit and alternatives.

In the autumn Budget at the end of October, the Chancellor announced a package of measures to support affordable lending, including a prize-linked savings scheme to encourage the growth of the credit union sector. Although the sector is variable in quality, as has been discussed, there are opportunities to expand it. Another measure is an affordable credit challenge fund to encourage the UK’s vibrant FinTech sector to solve the challenges that I just discussed with my hon. Friend the Member for South Suffolk. A further measure is a change in the regulatory boundary to allow registered social landlords to offer their tenants better community lenders. A final measure is a feasibility study into a no-interest loan scheme, and a pilot of that scheme.

The right hon. Member for Birkenhead is absolutely right that banks have a responsibility to assist and facilitate better solutions in this area. Earlier this year, we took through the House the single financial guidance body, which will be a huge partner in working—I hope—with the banks, which often have worthwhile initiatives that are piecemeal and not joined-up. My vision, which is very similar to his, is of the banks coming together to recognise that, across the country, there are pockets of poverty and deprivation that need a new solution, which involves pooling their expertise and endeavour and working closely with the single financial guidance body to deliver a better set of options and outcomes for the constituents for whom he has been fighting so earnestly for 40 years.

I thank the right hon. Gentleman for securing the debate. He and other hon. Members have raised some significant issues that I take to my heart and back to my office. I hope I have offered him some reassurance by setting out the comprehensive and concerted actions that the Government have taken with the FCA to address the challenges in this area. I am clear that the Government are on a journey to actively and comprehensively support vulnerable borrowers. I want to continue to work with him, and other hon. Members from both sides of the House, using the knowledge and expertise that exists, to come up with even better solutions to deal with a real problem in some communities in this country.

Question put and agreed to.