Consumer Credit and Debt Management

Debate between Jim Cunningham and Stella Creasy

Thursday 3rd February 2011 Commons Chamber

[Stella Creasy]

The hon. Gentleman raises an interesting point which Members might want to cover during the debate.

Most importantly, we are looking at the principle of how we could stop people getting into such high levels of debt because of the rates they are charged for the borrowing that they undertake.

[Mr Jim Cunningham (Coventry South) (Lab)]

Has my hon. Friend noticed that these businesses and shops are advertised on television? Does she have anything to say about that?

[Stella Creasy]

I do indeed, but I will leave that to my much more eloquent colleague, my hon. Friend the Member for Darlington (Mrs Chapman), who has done some sterling work in introducing proposals on how we might address some of the problems caused by advertising.

It is the captive nature of this market that makes intervention so key. The lack of competition for these products keeps prices artificially high, along with profits. The Office of Fair Trading says that there is not enough of what it calls “substitutivity”. Let me put it more simply. As the industry itself admits, 25% of home credit users and 23% of payday users have no other credit option. Consequently, these companies can extract what might be termed an economic rent. They set the terms of the trade in what they will lend at a risk that is much too high for consumers. In this context, I pay tribute to the work of the right hon. Member for Welwyn Hatfield (Grant Shapps), who is now a member of the Government, and who published a report in 2009 highlighting the lack of competition in this market and its consequences. As he said,

“We think it is obscene that anyone should end up paying 10,000% APR, particularly when the evidence suggests that these loans are targeted at some of the most vulnerable members of our society”.

These are people for whom such repayments become a weight on their finances and their families—people who do not have large amounts of disposable income and for whom any change in circumstance, be it divorce, job loss or increases in rent, can tip them into destitution. The Consumer Credit Counselling Service says that one in eight people who contacted it for help with such unsecured debts in the first half of last year were on jobseeker’s allowance. Contrary to what might have been suggested this morning on the “Today” programme, one in 10 payday loan customers are on £11,000 per year or less. These are people like the man who contacted me because he currently has nine payday loans that he is trying to pay off. One company, Wonga, is chasing him for £1,600 for an £800 loan that is 40 days overdue. The first loan was meant to be a stop-gap to bridge the gap between one job and the next pay cheque, but the interest in itself quickly becomes the long-term debt. If those are the problems, what are the solutions?