Credit Cards: Cost Regulation
Debate between John Glen and Stella Creasy(6 years, 10 months ago)
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Stella Creasy
The Minister mentions that the FCA consulted on persistent debt. The FCA defines persistent debt as paying 100% in interest and charges on top of the principal repaid over an 18-month period. Given the evidence that that is exactly what people are doing on these credit cards, and the fact that we intervened and capped the cost of credit through payday loans when we saw that, will the Minister explain why it is acceptable not to do that for credit cards when it is okay to do it for payday loans?
John Glen
I will come on to that. As ever, the hon. Lady is eager to intervene. Let me finish what I want to say, and I will give her the answer that she wishes to hear.
The remedies include requiring firms to take steps to encourage customers to repay debt quicker and to avoid getting into persistent debt in the first place. Where customers are not able to repay their debt in a reasonable period, firms will be required to offer forbearance. Firms will also be required to use the data available to them to identify customers at risk of financial difficulty earlier and to take appropriate steps.
The FCA’s rules apply to all credit card companies, including those that lend at the higher interest rates, some of which the hon. Lady mentioned, to customers with poor credit ratings. All lenders have a duty to treat customers fairly and to lend only to those who can afford to repay. We expect the FCA to publish a final policy statement soon, and I will look carefully at what it says to see how we can take this forward. It seems a bit unreasonable not to wait for the final policy statement before we conclude where the FCA has got to with it.
As an additional weapon in its armoury, the FCA has worked with the industry’s leading body, UK Finance, to secure a voluntary agreement with its members to restrict unsolicited credit limit increases, giving customers more control over their accounts. All customers will be made aware that they can choose not to receive offers, and customers in persistent debt will not receive any unsolicited credit limit increases at all. New customers will be given the choice of how credit limits will be applied to their account, and firms will make it easier for existing customers to decline offers of a credit limit increase by reminding them of their options.
The combination of existing FCA powers and the proposed package of remedies is a very robust arsenal.
John Glen
No, I will continue.
The measures are a demonstrable commitment by this Government, the regulators and the industry to tackle structural issues within the credit card market. [Interruption.] If the hon. Lady did me the courtesy of listening, as I did to her, it would be quite helpful.
Thinking about the limits that should be put on the cost of credit card borrowing, which I think the hon. Lady referred to, it is important to note that the Government have already given the FCA the power to cap all forms of credit, and the FCA can do that if it thinks it is necessary to protect consumers. However, it is neither this Government’s mandate nor our role to intervene in a functioning and competitive market. In addition, a credit card cap would be inherently more complex than the price cap introduced on payday loans in 2015. Payday loans are fixed-term, discrete loans, whereas credit cards provide a revolving credit facility—they are quite different.
What the Government can do, and already have done, is ensure that there are regulatory checks and balances in place to ensure fairness. The FCA has said that it will keep the issue of a mandatory cap on the cost of credit, including credit cards, under review. The FCA will monitor the effectiveness of its credit card remedies, and can take further action if necessary.
Stella Creasy
The Minister has not answered my question. With the greatest respect to the Minister, I asked him a very specific question about the disparity between it being unacceptable for people with payday loans to pay double in interest what they had taken out, and those 5 million people who are stuck in 10 years-worth or more of credit card debt continuing to pay those rates. I would like his specific answer on that unacceptability.
John Glen
I did directly explain that there is a distinct difference between the nature of a payday loan and a credit card facility. I explained that very clearly and I am sorry the hon. Lady did not hear it.
It will be helpful to set out some of the things that the Government have done with respect to dealing with people in financial difficulty. The Government are delivering on their manifesto commitment to implement a breathing space and debt management plan. The call for evidence on the breathing space scheme recently closed, and the Government have committed to consult on a policy design proposal in the summer.
We set up the Money Advice Service, which spent close to £49 million on providing 440,000 debt advice sessions last year. We are now going further to ensure that consumers can gain easier access to financial guidance and debt advice by creating a new single financial guidance body, which will bring together the Pensions Advisory Service, Pension Wise and the Money Advice Service. The new body will make it easier for consumers to get help with all aspects of their financial lives, as well as having a statutory duty to improve financial capability and to commission free-to-use debt advice. The Bill to create the new body is currently before the House of Commons.
I thank the hon. Lady for raising this issue—I acknowledge that it is very important—and for speaking with such fervour. I share some of the concerns that she has expressed. Millions of people in this country use credit cards regularly, and the Government are committed to ensuring that they are treated fairly and not encouraged to fall into persistent debt. I hope the hon. Lady understands that a cap on the cost of credit card borrowing is not an effective solution. It is a blunt, interventionist approach to a complex issue. The Government have given the FCA strong powers to take action, and the FCA is putting in place measures to tackle persistent debt in the credit card market. This is not a static issue, however, or one that I and the Government are not interested in examining on an ongoing basis. The Government and the FCA are committed to ensuring that it remains under constant review.
Question put and agreed to.
Resolved,
That this House has considered regulation of the cost of credit cards.