High-cost Credit

Jo Swinson Excerpts

Thursday 5th September 2013 Commons Chamber

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

We have had an excellent and constructive debate, and I thank the hon. Member for Islwyn (Chris Evans) for introducing it and the Backbench Business Committee for allocating time. I appreciated his welcome for the action the Government have already taken, such as on the research into advertising and the FCA strategy that we are due to see soon with the publication of its rulebook. I understand and appreciate his concern about the speed of change, and the frustration he feels. His party colleague the hon. Member for Edinburgh South (Ian Murray) said the pace of growth of the payday lending industry has been extraordinary. The Government and regulators have, of course, been working to keep up, and I think we have seen in recent months that that has been happening.

Various alternatives have been mentioned. One of them was the possibility of introducing low-limit credit cards, and I have explored that with the UK Cards Association and others in the industry, as I think it could be one of the alternatives that might work. Of course, it would not work for everybody; as we have heard, some people who take out payday loans are keen to make sure that they get something quickly and with that level of convenience. Indeed, some may not pass the credit scoring that would be required for some of those credit cards. That underlines the importance of the affordability assessments, because people are currently passing the checks by payday lenders and perhaps some of them should not be.

My hon. Friend the Member for Thurrock (Jackie Doyle-Price) talked about the PAC report and the importance of this House sending a clear signal to the FCA that it expects it to use its powers to intervene where there is poor practice, and I absolutely agree with her. We do expect that, and I have made that abundantly clear to the FCA. Today’s debate has also been very helpful in making it clear exactly how strongly the House feels about this issue. I am sure that the FCA will be following this debate, but just in case it is not, I will happily write to it to draw it to its attention. Indeed, next week I will be meeting Martin Wheatley to have further discussions on this issue.

My hon. Friend mentioned that she was disappointed that the Office of Fair Trading had failed to use its powers to revoke licences. That was true at the point at which the PAC took evidence from the OFT, but she will be pleased to know that since that report was published it has revoked three licences—so those powers are being used.

I commend the hon. Member for Walthamstow (Stella Creasy) for all her campaigning on this issue; we had a positive meeting to discuss it earlier this week. Obviously, the profitability of payday lenders has been high up in the news this week, and we agree on the level of profits being derived from default fees, roll-overs and so on. That is why it is so important that the Competition Commission is investigating this market. It has already begun its investigation, issued its issues statement and invited comments from interested parties by later this month.

We discussed in detail the other day the points that the hon. Lady made about total cost capping. I appreciate that we perhaps have a difference of opinion on where exactly the evidence points, the possible negative impacts of fees being charged elsewhere—a displacement effect—and whether or not there would be less sympathy for lenders than difficulty. That said, it is vital that the FCA has that power and has the evidence. Her point about ensuring that the FCA can get off to a flying start when it takes on the responsibility in April 2014 is important. I have been keen to ensure that it is able to do that, and it has said it is prioritising the issue.

On the hon. Lady’s point about data sharing in the industry, I encourage lenders to liaise and share their data with the FCA in advance of its taking over that responsibility. The OFT has a data-sharing agreement with the FCA, so data that it has can be shared, with all the appropriate confidentiality protections in place, as one would expect. It would be helpful if the industry would share further data with the FCA, and when we had the summit the industry indicated its willingness to be as helpful as possible. I hope that it will be able to take that up.

[Stella Creasy]

rose—

--- Later in debate ---

[Jo Swinson]

I appreciate that the hon. Lady wishes to intervene, but as time is so short and as I wish to respond to other Members’ contributions, I will not give way. I hope she will forgive me.

My hon. Friend the Member for Worcester (Mr Walker) talked about the importance of ring-fenced bank accounts, where payments for rent and bills can be set to one side. The Government are working with consumer groups and banking organisations to see whether more of those types of accounts can be provided, because they can be an important budgeting tool.

The hon. Member for Makerfield (Yvonne Fovargue) has campaigned for her constituents on high-cost credit issues for a long time. She rightly highlighted concerns about CPAs and the way in which banks have treated them, because where individual customers decide to cancel a CPA, that should be honoured. She will be pleased that the FCA took up that issue seriously once it came into being earlier this year. It now has agreement with the high-street banks that they will ensure that when a customer asks for a recurring payment to end, that will be sufficient to cancel the arrangement. Furthermore, if any payment subsequently goes through by mistake, the customer will be refunded immediately. That will not solve all the problems on CPAs but it is a good start, in terms not only of dealing with the problem, but by showing the FCA’s recognition of it and its willingness to act.

My hon. Friend the Member for North Swindon (Justin Tomlinson) has a strong record on campaigning on financial education, and he highlighted the issue of convenience and the importance of price information. He also rightly highlighted real-time credit checking as a key area. I found interesting his idea of a levy on the industry to enforce that kind of credit checking. The industry is examining whether it can do that itself and I hope it will do so, but it is important that the Government keep all ideas such as his in mind, in order to be able to do that in future.

The hon. Member for Sheffield Central (Paul Blomfield) had his private Member’s Bill and we had a good debate on this subject in July. Today, he asked about the date for the consultation and I can confirm that we still expect that to be in September. I cannot give him an exact date, but he does not have long to wait. We look forward to the FCA’s report.

My hon. Friend the Member for Chatham and Aylesford (Tracey Crouch) made a frank and moving speech about some of her own experiences and highlighted the human side of the argument—hiding from bills and lying awake at night worrying about debts. It is important that we bear that in mind when we discuss these issues.

Let me pick up on the points made by the hon. Member for Blaenau Gwent (Nick Smith) about whether post offices could play a role in supporting credit unions. There is scope for further work there.

The hon. Member for Banbury (Sir Tony Baldry) wanted to chime with the Archbishop of Canterbury’s call to compete Wonga out of business. The fact that the hon. Member for Islwyn summed up the relationship between credit unions and the payday lending industry as like that of David and Goliath was particularly appropriate given the Church’s intervention. I was pleased to meet the Archbishop of Canterbury on this issue along with my right hon. Friend the Secretary of State. It will not be a short-term solution, which is why regulation is also important, but it is part of the long-term answer.

The hon. Member for Hackney South and Shoreditch (Meg Hillier) made considered remarks about the importance of there being different products in the market and the certainty that home lending, for example, can provide to some customers. She was also right to highlight some of the problems with some of the hire purchase agreements through companies such as BrightHouse. Although they might not technically be high-cost credit because the APR is not sufficiently high, the length of the loan means that customers can end up getting a raw deal.

Issues of financial education were highlighted by my hon. Friend the Member for Hexham (Guy Opperman). My parliamentary neighbour, the hon. Member for Glasgow North East (Mr Bain), talked about the Colston road divide and the important issues facing small credit unions. My hon. Friend the Member for Tiverton and Honiton (Neil Parish) highlighted the issues of the spiral of debt.

We have had a positive debate. I share the concerns that have been raised and Government and regulators are acting. The OFT has taken action and 19 of the 50 top lenders have left the market. Three further licences have been revoked. The FCA will have strong new powers from April, the Competition Commission is investigating and the House is right to keep up the pressure. I commend those hon. Members who have taken time this afternoon to put forward concerns on behalf of their constituents.