Lord Beamish
Main Page: Lord Beamish (Labour - Life peer)
Jo Swinson
I know exactly who my hon. Friend is referring to. I would merely point out that they were very selective in their use of statistics. For example, they ignored the fact that the payday lending market has doubled in recent years. The fact that there was a frank exchange of views in no way contradicts what I said about our delivering a clear message to the payday lenders about what they have to do to get their house in order.
My hon. Friend the Member for East Hampshire (Damian Hinds) spoke well about how adverts pretend that such loans will solve problems that they will not solve. The adverts suggest that a payday loan is the answer to problems such as not having enough money towards the end of the month. If people find themselves in that position, the answer is not to take out a payday loan, but to get some good financial and debt advice.
When legislating on advertising, the evidence base for what should be brought in and what will work needs to be strong. The FCA will have powers to ban misleading financial promotions and to create rules on advertising payday loans. At the press Q and A after the summit, the chief executive of the FCA made it very clear that he would consider all sorts of rules that could be made with regard to advertising, including on the timing of adverts and the content that needs to be included. The FCA is very clear that it is looking at that issue.
It is important to proceed on the basis of research and evidence. BIS has commissioned Ipsos MORI to conduct qualitative research into the impact of advertising on consumer behaviour because we want to know what changes would be most effective in helping consumers. It would be easy to pull something out of the air and say, “This is what we should do on advertising,” but we want to know what works.
My hon. Friend the Member for East Hampshire talked about the wallpaper of life: the little annotations that we hear and see in adverts all the time, such as “terms and conditions apply” and “shares may go down as well as up”. Do we actually respond to all those things or would other things be more effective? The research will look at what health warnings or wealth warnings might work on such adverts, whether signposting debt advice might be more effective, and what is the best way of simply explaining the cost to people. There is a range of reasons why APR is not the most relevant figure in the context of payday and short-term credit advertising, not least of which is that many people do not understand what APR is. Is there an easier way to get that information to the consumers? That research will provide evidence to inform the FCA as it develops its rule book. We will publish the findings in the autumn.
The next issue is roll-overs. The hon. Member for West Ham (Lyn Brown), who is no longer in her place, made an interesting intervention in response to my hon. Friend the Member for Shipley. She was right to say that people are often not lending £150 at a high interest rate for just two weeks. If it was just for—[Interruption.] I do apologise. The hon. Lady is in her place but I could not quite see her behind the Table. She was right to highlight this issue. If somebody is lending money over a very short period at a high interest rate that basically covers the administration cost of setting up the loan arrangement, that is not necessarily problematic. The problem arises when that short-term loan is no longer short term, but becomes medium or long term because it is rolled over from one month to the next. That is when the APR is much more relevant, because people are taking out a much longer-term form of credit. Roll-overs are therefore problematic. In some cases, even one roll-over is too many.
Mr Kevan Jones
Why are the Government and the hon. Lady opposed to legislation such as that common in Canada, for example, which bans roll-overs in some places or limits the length of a loan?
Jo Swinson
I am not opposed to regulation or rules on that, but the issue is whether it is best for the Financial Conduct Authority or the House to put the rules in place. We have given responsibility for regulation to an independent agency that has tough powers and the ability and expertise to look at specific evidence on what will be most effective, and that is where rules will best be made. The FCA has said it will look carefully at what needs to be included in the rules on things such as roll-overs, and the voluntary code to which lenders have signed up states that they too believe that some restrictions on roll-overs are appropriate within the industry.
Jo Swinson
That intervention hardly merits a response. I am here because I am the Minister responsible for issues that affect consumers and consumer credit. We have significant problems in the payday lending industry, and my priority is finding the best way to solve them. I do not believe that the House prescribing these measures is necessarily better than it being done by the FCA. The FCA can put rules in place and, importantly, can change them whenever the market changes. We know that the market is fluid and that it changes regularly. If rules are put in place and practices change to get round them, the FCA can act swiftly to ensure that loopholes and gaps are plugged. That is a better way of protecting consumers, although the hon. Member for North Durham (Mr Jones) is entitled to disagree.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
On behalf of the Opposition, I support the Bill introduced by my hon. Friend the Member for Sheffield Central (Paul Blomfield). I was bemused by the claim from the hon. Member for Portsmouth North (Penny Mordaunt), who is no longer in her place, that the Opposition were trying to delay or talk the Bill out; nothing could be further from the truth. In all things this week, I hope I have been a model of restraint, and I intend to continue in that way this morning by making a brief intervention in support of the Bill in order to allow Back Benchers to contribute.
My hon. Friend gave an eloquent and thoughtful presentation of the Bill. It was interesting to hear him highlight the cross-party support for these measures, built on the growing consensus about what the key components of regulation ought to be. I hope the Minister heard that and took it on board. It was correct that she spoke at length, because it enabled her to lay out the issues, particularly around the summit she held and the other work undertaken. I hope she understands that, as my hon. Friend said, Citizens Advice, Which?, the Centre for Responsible Credit, the charity StepChange and the Centre for Labour and Social Studies—which have all published or given opinions on this issue—have highlighted the difficulties and issues faced by ordinary people who get involved in payday loans. He also paid tribute to the many people who give advice on debt locally. I add my congratulations to them on the work they are doing in difficult economic times, as they try their best to ensure that people have the correct information.
In introducing the Bill, my hon. Friend laid out the importance of the FCA’s role, which would not be as over-prescriptive as the Minister seemed to suggest. Rather, the FCA would give the direction of travel on key issues and set a clear framework. My hon. Friend did well in outlining those options to take the Bill forward, but also making it clear that he was open to further debate.
Mr Kevan Jones
Does my hon. Friend find it intriguing—indeed, it is quite inexplicable—that the Government are not prepared to allow the Bill to go into Committee to explore some of the issues she is articulating?
Cathy Jamieson
Indeed, and that is one of the points I wanted to make in response to what the Minister said. I know her to be someone who cares about what happens on this issue. To be fair, she has shown that since taking up her post, although I would not necessarily agree with everything she said this morning. Notwithstanding the fact that she said that she did not agree with the principle of the Bill, I suspect that, as an individual, she has some sympathy for what my hon. Friend the Member for Sheffield Central is trying to do. That is why I am somewhat surprised that the Government seem to be responding by not allowing the Bill to proceed to Committee, where there would be the opportunity to explore some of the information in much greater detail.
Mr Robin Walker (Worcester) (Con)
It is a pleasure to follow the hon. Member for Harrow West (Mr Thomas), who made a number of important points.
This is the first time in my parliamentary career that I have been here on two consecutive Fridays. I am delighted to be strongly supporting two Bills that are very different but both very important to my constituents. It is a great pleasure to speak in this debate, which was ably opened by the hon. Member for Sheffield Central (Paul Blomfield), with whom I greatly enjoy serving on the Business, Innovation and Skills Committee. Although we speak from different sides of the House, I think that I can genuinely describe him as my hon. Friend. I know how much work he has put into this Bill, and it is a credit to him that he has attracted widespread support across the whole House on such an important issue.
My hon. Friend the Member for North Swindon (Justin Tomlinson) would have been here to speak in support of the Bill but has been detained by issues in his constituency. I pay tribute to the work that he has done with the all-party group on financial education for young people and the major battle that he has won in getting compulsory financial education into the new national curriculum. That is a big step forward that will help to address this issue. I congratulate my hon. Friend the Member for East Hampshire (Damian Hinds) on a brilliant speech that addressed many of the issues involved. I was also pleased to hear my Select Committee colleague, my hon. Friend the Member for Castle Point (Rebecca Harris), raise issues on behalf of her constituents.
I listened carefully to what the Minister said. I welcome many of the ways in which she has engaged with this topic, particularly her emphasis on the FCA providing strong regulation; indeed, I have spoken about that in previous debates. However, I was disappointed to hear her say that she would not be supporting the Bill, because I think that it should be debated and taken forward. It is interesting that she chose to argue that it would limit the independence of the FCA. In fact, the phrases in the Bill have been very carefully chosen to empower the FCA and to give it flexibility—indeed, in the view of my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), who is such a doughty champion of Parliament, to give it too much power and flexibility. We clearly have an ongoing debate on the Government Benches about whether the Bill would tie the hands of the FCA.
Mr Kevan Jones
Does the hon. Gentleman agree that if the Bill went into Committee and the Government had concerns about some parts, it could be amended to improve it?
Mr Walker
I agree with the hon. Gentleman.
This Bill deserves our support, first because it is a good and well-drafted Bill; secondly, because it addresses a hugely important issue that really matters in our constituencies; and thirdly, because of the polite, sensible and reasonable way in which the hon. Member for Sheffield Central has set about building a cross-party coalition of support for it. He has support from members on both sides of our Select Committee and, as far as I know, from all parties in this House, although the Liberal Democrats have not yet offered any.
This should not be a party political issue, but an issue on which we are all acting in the best interests of our constituents. As the hon. Gentleman clearly set out, there is a need for measures to protect the most vulnerable consumers from unaffordable loans. The many organisations on the front line, such as Citizens Advice, StepChange, Which? and Christians Against Poverty, have set out a powerful case for change to the way in which the sector works.
In rising to support this Bill, I pay tribute to the hugely important work of volunteers in providing debt advice, research into the problems of high-cost lending and the steps necessary to protect the most vulnerable from the risks of high-cost credit. Local organisations in Worcester that have contacted me about the issue include Worcester citizens advice bureau, Two Pennies Money Advice, St Paul’s hostel and the Tolladine mission, all of which, alongside numerous church and religious groups, provide invaluable support to my constituents and vital community services. I am very grateful for their support in drafting this speech and the information they have provided to me.
I have also received a number of letters of support for the Bill from a number of individual constituents and, indeed, from Unite the Union, an organisation with which I do not always find myself in agreement—at least in its national aspect—but whose local representatives I have always found to be reasonable, sensible people who want the best for their members and with whom I have been working closely lately on a couple of issues in the constituency.
Mr Kevan Jones
Obviously, the hon. Member for Shipley (Philip Davies) does not understand how political funds work: lending money for that purpose would not be allowed by the law.
Mr Kevan Jones (North Durham) (Lab)
May I begin by declaring an interest? I am a non-remunerated director of the Prince Bishops community bank, which is a credit union in my constituency.
I congratulate my hon. Friend the Member for Sheffield Central (Paul Blomfield) on introducing the Bill and on coming second in the private Members’ ballot. Having promoted a private Member’s Bill myself, I know the amount of work that is involved. He has picked a subject that has clear relevance not only to his constituency, but to the constituencies of many Members on both sides of the House.
There have been three excellent speeches from Conservative Members, including the last one from the hon. Member for Worcester (Mr Walker), and I will refer to those in a moment. However, it is disappointing that although the entire parliamentary Conservative party was here last Friday, very few Conservative Members are here today. That shows what their priorities are. This Bill would make a real difference to our constituents, unlike the Bill that they lauded last week, which will make none at all.
I accept that some Government Members support the Bill and want it to proceed to Committee, where it can be amended, but I doubt whether that will be achieved, because the Minister has said that the Government will oppose it. That is clearly an attempt to keep the channels clear for the Bill that the Conservative party want to proceed, which is the European Union (Referendum) Bill. It is unfortunate that the Liberal Democrat Minister, the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for East Dunbartonshire (Jo Swinson), cannot be here. I understand that she has had to leave the Chamber because of family commitments. This is not the first time in the past three years that the Liberal Democrats have been hoodwinked by the Conservative party, but it is a classic example of it. A ComRes poll found that about 90% of Labour Members supported further regulation, but that 64% of Government Members opposed it. That shows the priorities that Government Members have, with the honourable exceptions of the Members who have spoken today.
My hon. Friend the Member for Sheffield Central and others have spoken of the heartache and misery that payday loans are causing in many constituencies. First, I will talk about interest rates and pick an example. For no apparent reason, I will decide on Stockton in the north-east—I am not sure whether the hon. Member for Stockton South (James Wharton) is here today. Let us look at the number of payday lenders on Stockton high street: Cash Krazy, No. 1 Currency, Cash Generator. The Money Shop, Cash Converters, and Ramsdens 4 Cash. Rates of APR—I checked the websites last night—range from 2,400%, to the lowest rate of 897%. That shows the scandal surrounding payday loans. Industry spin says that such loans are for short periods, but as we have heard, and as I know from my constituency, they are not. I will mention roll-overs later in my remarks.
Philip Davies
I tried to get this information earlier from the hon. Member for Sheffield Central (Paul Blomfield), without any success, so I wonder whether I can tempt the hon. Gentleman. According to moneysupermarket.com, borrowing £100 for one month will lead to a repayment of somewhere between £125 and £135. If he thinks that is excessive, what figure does he believe would be an acceptable amount for someone to repay after a loan of £100 for a month?
Mr Jones
That is an interesting point. The Bill suggests it is for the regulator to determine that and I will give some examples in a minute. I find the hon. Gentleman’s position very strange. I have a copy of the Telegraph & Argus from 7 March 2013—not that long ago. It has a very flattering photo of the hon. Gentleman and the headline:
“MPs welcome crackdown on payday lenders”.
That seems a little at odds with what he has been saying today, so perhaps he should go back to the Telegraph & Argus—which I understand is a reputable newspaper—and correct its possibly misleading headline. No doubt this weekend he will explain to his constituents that he is not actually that much in favour of a crackdown on payday lenders.
Can someone get interest rates that are cheaper than those I have described? Yes, they can. Credit unions have been highlighted already, and as the hon. Member for Worcester (Mr Walker) said, we must also do more to encourage high street banks to contribute to the pot, or offer some type of facilities for these people. Another way of getting a cheap loan is knowing one of the payday lenders. Everyday Loans is owned by a friend of the Prime Minister, Henry Angest, who lent £5 million to the Conservative party before the last general election. On average, Everyday Loans charges 74.8% interest, but the Conservative party paid 3.5% interest.
Jacob Rees-Mogg
The obvious answer to that is that there is no better credit-rated borrower than the Conservative party, the oldest party in history.
Mr Jones
Given the mess that the Chancellor is making of the economy, I am not sure I agree with the hon. Gentleman. The point is that the Conservative party can accept a cheap loan from a person involved in payday lending, at the same time as many of our constituents and ordinary hard-working families are being charged 74% interest. It goes further. Adrian Beecroft is a major stakeholder in Wonga which, as has been mentioned, charges up to 4,000% interest. He wants us to deregulate more—zero-hours contracts, the minimum wage and all the other things that he wants put forward in a deregulation Bill—but that will cause more of the problem. I am not surprised that he is in favour of it, because it will lead more people to payday loans at exorbitant rates from the likes of Wonga. I am a bit baffled by the Government’s approach to the Bill. It would be sensible to send it to Committee, debate it and if they want to amend it, they can bring forward proposals.
The heart of my point is how policy is influenced. The Prime Minister said this week that nobody buys Conservative party policy. We have heard very good contributions from Conservative Members who are clearly in touch with what is happening on the ground. However, while the Conservative party chairman, the Minister without Portfolio, the right hon. Member for Welwyn Hatfield (Grant Shapps) has described payday lenders as “obscene”, he is not afraid to accept their money.
Representatives from Wonga attended an event at the Conservative party conference that was described as a “speed dating event”, at which the Economic Secretary to the Treasury, the hon. Member for Bromsgrove (Sajid Javid), the Exchequer Secretary to the Treasury, the hon. Member for South West Hertfordshire (Mr Gauke) and the Minister of State, Department for Business, Innovation and Skills, the right hon. Member for Sevenoaks (Michael Fallon) spent 20 minutes at each table. The idea of speed dating two of them might not seem too bad, but the idea of speed dating the right hon. Member for Sevenoaks is taking things too far.
Philip Davies
The hon. Gentleman is thrashing around, trying to throw mud in every direction. In relation to the mud he was trying to throw at me, when I think he was alleging that I was acting in an inconsistent manner, he clearly does not read the mud he has been throwing. If he read the article he would know that I said:
“I am sure everyone supports the OFT in their aim to have an industry which operates responsibly. However, we must tread carefully. Removing legal lenders through well-meaning legislation and regulation will not reduce the demand for their services, it will just push people to illegal loan sharks whose way of operating is often utterly unacceptable and much worse for their customers.”
Did the hon. Gentleman read what I actually said in the article he quoted, or was he just hoping that if he threw enough mud some would stick?
Mr Jones
I think the mud is firmly stuck on the hon. Gentleman. From his comments today, I would suggest that he has been an apologist for the payday lenders rather than someone calling for a crackdown. All I am saying is that he might want to correct the Telegraph & Argus headline. He has used this debate to support the payday loan industry, rather than support a crackdown.
Philip Davies
The hon. Gentleman is just highlighting his own ignorance. If he read the article, which he clearly has not, he would know that it quoted all the Bradford MPs. The article was not specifically about me; it was about what all five MPs in the Bradford district said. The headline was a reflection of that, and not what I said. My views were made perfectly clear then and they are consistent with the points I have been making today.
Mr Jones
The hon. Gentleman must have a very good relationship with the Telegraph & Argus—I do not have the piece here; I just wrote it down—because there is a blooming big photograph of him next to the “crackdown” headline, when it is not a crackdown but the back-down that he has put forward today.
Returning to the speed dating initiative and the influence on Conservative party policy on this area, the party’s response was:
“It is essential for good regulation that ministers and others meet with and listen to the views of the businesses they regulate as well as those who campaign for tougher measures.”
I do not think that anyone would disagree with that, but why should the option to meet Ministers cost £1,250? Will my local credit union or some of the victims of payday lenders have access to those Ministers? No. This is privileged access to senior Ministers bought by raising money for the Conservative party. Payday lenders indicated that they wanted light-touch regulation, despite ordinary people suffering at their hands.
As others have said, payday lenders look like Robin Hood in reverse; they take money from the poor and give it to the rich, and some of the Government’s policies will only make it worse. If people have to wait seven days to apply for jobseeker’s allowance, it will be a bonanza for the payday loan industry. If someone is made redundant and has no savings, what do they live on? They will go to a payday lender and get into the cycle of debt already described. The hon. Member for East Hampshire (Damian Hinds) made a good speech, but I do not think he understands that a lot of people do not have savings, have no recourse to family members with large savings and are living from week to week—in some cases from day to day. I work with credit unions encouraging people to save small amounts—I accept his point about that—but, as the hon. Member for Worcester said, credit unions will not solve the problem, unless we make an effort to expand them.
There is another problem waiting to hit this country big time, and it does not just concern people suffering now: an increase in interest rates. Yesterday, The Times reported that if mortgage interest rates rose by 2%, 800,000 people would be spending more than 50% of their income to pay off their debts, and that if they rose by 4%, that figure would be 1.2 million. This is a time bomb. Currently, we rely on low interest rates, but if they rise, the situation will get serious, with a lot of people struggling now needing support, and a bonanza for the payday loan companies. I am not surprised that, as someone said, many American companies have moved away from that regulated market to what must seem to them like the Klondike.
I want to raise a question I have come across in my constituency, and one that has been raised already: can these people afford to pay back this money? In most cases, the answer is no; and the lenders know that. Their record on background checks is poor. It is like with heroin addicts. These payday loan companies get people on to it, and then keep them on it. That brings us to roll-overs, which the OFT, like my hon. Friend the Member for Sheffield Central, have criticised. Once people get into debt, it just carries on, so it is a bit like heroin. People get hooked and never get off the treadmill. That must be stopped.
The hon. Member for Castle Point (Rebecca Harris), who is no longer in her place, mentioned the misuse of the continuous payment authority. This comes down to financial education. People are not aware that these debts need not be the priority. Often, they are treated as the priority, however, because people have been led to believe that they have to pay them off before their mortgage and other debts. That definitely needs explaining and regulating, which the Bill would do.
Mark Durkan
Does my hon. Friend agree that some of these businesses are basically committing usury and that the arguments against the Bill are nothing more than “excusury”?
Mark Durkan
I thank my hon. Friend for giving way again. Does he recall that when the Government were taking through the Financial Services (Banking Reform) Bill—which makes far more provision in respect of the FCA, the Prudential Regulation Authority and the new regulatory system—they made a point of saying that it rightly provided more indicators from Parliament for issues and options to be considered in relation to the FCA’s other functions, because the evidence was that that had been missing from the previous regulatory regime. Surely this Bill is simply colouring in the equivalent considerations in respect of this power for the FCA.
Mr Jones
I am going to do an unusual thing now and agree with the hon. Member for North East Somerset (Jacob Rees-Mogg), who said that this House should have control of those things. The de facto position under this Government—and, I have to say, the previous Government—is that the best way to do these things is to create an arm’s length regulator, which will somehow sort the problem out. I am not opposed to that—although the episode involving the Independent Parliamentary Standards Authority this week has shown that it can backfire a little—but if we are to have a regulator, Parliament has to set clear guidelines. I am therefore not opposed to external regulation, as long as it operates according to a clear set of guidelines, which this Bill would set out. Indeed, that is the strongest aspect of this Bill.
Philip Davies
The hon. Gentleman seems to be saying that he wants roll-overs banned. I wonder whether he can answer the question asked by my hon. Friend the Member for Christchurch (Mr Chope) earlier. If somebody comes to the end of a loan and cannot pay it back, for whatever reason, what does the hon. Gentleman suggest they should do?
Mr Jones
There are two issues about the situation the hon. Gentleman describes. He asks, “Would it work?”, but he should look at Canada, where there is already a limitation of, I think, four months. First, I would ask the lender, “What credit checks did you do on the individual in the first place to lend the money?” Secondly, the company should try to work out how that individual could pay—whether over a longer period or something like that—but certainly not sucker them into another loan, which is what happens now. The hon. Gentleman is being naive—he is obviously not keen to crack down as hard on payday lenders as the headline suggests. The point is that if someone cannot pay back the first loan, how on earth are they going to pay back the second one? These companies know that. I do not want to call the hon. Gentleman naive—he is certainly not naive—but he is being naive in arguing that payday lenders somehow do not know that once they have got people hooked on that line of credit, it is in their interests to keep them on it.
Let me turn to credit unions. The hon. Member for Worcester made some good points about credit unions. I agree with him on one point: I am opposed to giving money to credit unions to top them up. However, he also raised some good points about a levy and how it could be used. Financial education and promoting access to credit unions would be a good idea. If they became beholden to the grant as such to keep them going, that would be a mistake. He therefore raised a good point. He has certainly thought about the issue and is right.
Finally, the issues that this Bill addresses are affecting millions of our constituents. Frankly, what is happening is a national scandal. These companies are taking money from the poorest and most deprived communities and individuals in this country and making millions of pounds out of them. I do not know how these people sleep at night; they are causing absolute misery. One thing that we in this House can do is to take steps to put right any injustices we see.
It is absolutely appalling that the Government oppose this Bill and will not allow it to go into Committee. This has nothing to do with the Bill itself; it has more to do with another Bill that the Government want to get through—the European Union (Referendum) Bill. They want to kill this Bill and allow the other one through. I hope that the millions of people up and down this country who support regulation will recognise what the Conservatives are doing. They put party politics over Europe higher than the misery of millions of our constituents, which is a complete disgrace. I have to add that it is not just the Conservative party, because not for the first time the Liberal Democrats have been hoodwinked into supporting the Tories.
I support this Bill because millions of people need the protections it provides. It should be allowed to go into Committee. It is not perfect; it can be amended and the Government could actively work to improve it in line with some of the sensible suggestions that have come from Conservative Back Benchers, including those of the hon. Member for Worcester, which would help to solve the problem of injustice. Am I angry that the Government are killing this Bill today? Yes, I am, and I think many other people will be, too.
Jacob Rees-Mogg
Perhaps the hon. Lady refers to:
“You have made my Father’s house a den of thieves”.
I was not going to quote that because I thought it was so well known that it would be unnecessary to trouble the House with it. Interestingly, however, the money changers in the temple were changing ordinary Roman coinage into the special coinage used in the temple for buying sacrifices and so forth, and making a very healthy return on that. I am not quite sure that it is the same as usury, which is another reason why I was not going to mention that precise example. However, it is interesting that these issues have come up over the years.
The councils of the Church have considered the matter. At the council of Nicaea, the Church council that set out the Creed also decided that the clergy may not lend money at interest, and that interest may not be charged above a rate of 1% a month. The same issues were being discussed then—the rate of interest being charged and who may be involved in the process. The rather splendid Pope Sixtus V—I rather like somebody called Sixtus V; there seems to be some incongruity in it—said that charging interest was
“detestable to God and man, damned by the sacred canons and contrary to Christian charity.”
We see that these issues have been problematic for not just hundreds but thousands of years. They have been debated by theologians and looked at by economists.
The fundamental point is that there are people who have money to lend and people who want to borrow, and bringing the two together, when done in a suitable way, is beneficial to both sides. It makes it possible for people to spread payments, make investments and order their lives in a way that is convenient to them, and at the same time it makes a profit for the person on the other side of the transaction, who has excess capital to lend out. However, with that come difficulties and problems that Governments have sought to solve over generations.
At this point, I think it is relevant to quote the introduction to Henry VIII’s Act against usury, which shows the context of the problem. It states:
“Where before this Time divers and sundry Acts, Statutes and Laws have been ordained, had and made within this Realm, for the avoiding and Punishment of Usury, being a Thing unlawful, and of other corrupt Bargains Shifts and Chevisances, which Acts Statutes and Laws been so obscure and dark in Sentences, Words and Terms, and upon the same so many Doubts Ambiguities and Questions have risen and grown, and the same Acts Statutes and Laws been of so little Force or Effect, that by reason thereof little or no Punishment hath ensued to the Offenders of the same, but rather hath encouraged them to use the same.”
That, I fear, is why, in the end, I am not going to support the Bill. What happens is that Parliament legislates to rectify a problem but finds that what it legislates does not actually do that. Henry VIII’s Act was repealed within six years. It was against usury and also set a maximum rate on mortgages of 10% per annum. However, it did not work, because there are always people needing to borrow money and people willing to lend it to them. The question is how that is done, at what stage in the process and who is involved.
Having a source of borrowing within a regulated business system is preferable to loan sharks, who have been mentioned. We hear about “legal loan sharks”, and they may become illegal in some of their practices, but as far as I am aware Wonga, however bad a company it is, does not send people round with baseball bats. There seems to be a fundamental problem in legislating in a way that will push people in difficulties in that direction.
Mr Kevan Jones
I agree with the hon. Gentleman, but in many cases such companies use financial baseball bats on people.
Jacob Rees-Mogg
But the difficulty is that the loan shark uses both financial and physical baseball bats. That is not to say that the behaviour of Wonga is good, and I will come on to that. However, there are already measures available for a crackdown, to use the word we heard earlier, on the operations of such companies. I accept that there are problems with the way in which such lenders operate. I oppose the Bill not because I do not think there is a problem but because there are already measures that can be taken but are not being taken. Another statute is not the answer to the problem.
That leads me on to the FCA and the normal laws. If I may, I will cite the case of a constituent who came to me not because he had borrowed money from Wonga but because it came after him saying that he had. Somebody had used his name, had borrowed I think about £300, and had got it deposited in a criminal bank account—a bank account not belonging to my constituent. Wonga then came after him and said, “You owe us this money. Please may we have it back?” He is a wealthy man, so he would have had no difficulty paying this money if he felt like it, but he was also not the sort of person who was going to be fiddled around with and pay money that he did not owe. So he said to Wonga, “I do not owe it. I never took out that loan. That is not my bank account.” Wonga wrote back saying, “That’s absolutely fine. We’ll write it off.” He said, “No, that is not absolutely fine, thank you very much. That is criminal activity and I should like it reported to the police.” He reported it to the police, but he was not the sufferer of the crime. It did not affect him. He was not short of £300; merely his name had been used. The police therefore would not do anything on his account and Wonga refused to report it to the police. Therefore it was allowing a crime to be committed and in effect rolling up the cost of that into the interest rate it charged to the people who borrow from it—in a payday loan at a very high rate, as has been mentioned—and taking that as a cost of doing business.
I have a serious gripe with that on two counts, which I know very well from my own business life in financial services. The first is that there is a basic principle of know your client. If somebody comes to my business and wants to invest with us, we have to know that client. We have to understand what their objectives are, what their wealth is, what their situation is, what type of investment is suitable for them. We have also to know who they are—who they really are, that they genuinely are who they claim to be. The know your client rule is at the absolute heart of financial regulation in this country, but for some reason Wonga and the payday lenders can completely ignore it.
Jacob Rees-Mogg
The hon. Gentleman makes an interesting point, but knowing your client is not knowing a group of clients or a class of clients; it is knowing your client as an individual—as a person. That has been in the rule book of the FSA before and of the FCA now, and of the Investment Management Regulatory Organisation before them. It is a fundamental rule of financial services that we should know the counter-party with whom we are dealing and we should not deal with that counter-party if we do not, because we have a regulatory obligation to ensure the product we are offering is suitable to them. This seems to me to be a matter not of legislation, therefore, but merely of the FCA covering the bodies that are making the payday loans through its existing regulations, which would need very little change. That is a very straightforward means of putting this anomaly right.
Mr Kevan Jones
Is it not the case that some of the things that the Government are doing, such as the bedroom tax, are driving people to take payday loans? If we followed through the proposals made by Beecroft, who is a major stakeholder in Wonga, there would be more zero-hour contracts and less protection at work for those individuals.
Lyn Brown
I agree with my hon. Friend’s analysis.
Community Links is a valued and well-established charity in my constituency that has worked tirelessly on behalf of disadvantaged communities for more than two decades. Its clients include people who have taken out payday loans as a means of supporting regular family expenditure. Community Links tells me that over the last year or so it has seen a 20% increase in payday loan problems, which its advisers attribute to the ease of access and application. It has given me two examples to share with the House of real everyday problems faced by my constituents.
The first client is a married woman with two school-aged children. The family own their property and are paying off the mortgage. She was in part-time employment, working as an administrative assistant, and her husband had been made redundant, so the family had to manage and struggle on her single wage. She started to take out payday loans in order to clear unexpected bills, but she then began to use the loans as a way of increasing family income.
Although she was highly experienced at juggling the loans, one by one the loan companies started to contact her regarding repayment. When she went to Community Links for advice, she had four payday loans with four different companies—short-term loans with high interest. She had also been using her credit card to pay for family expenditure and the total debt was about £7,000. She tried to negotiate the payments herself, but the companies simply were not interested. She felt threatened by numerous telephone calls, sometimes many on one day, and visits to her home address. Although she is a very competent individual, she became swamped by the loan companies’ demands and sought legal advice as a result. Community Links advisers drafted a financial statement, negotiated with creditors and arranged reasonable payment terms. It also arranged for her mortgage payments to be reduced in order to bring down her expenditure to match her income. The Bill’s proposals on affordability and access should help prevent the build-up of such calamitous debts. If she had not gone to Community Links, or if it had not had the staff to help her, I shudder to think what would have happened to her and her family. It would have meant default on the mortgage and homelessness. She would then have had no choice but to apply for housing benefit and would have had found herself, as is often the case in London, in substandard, expensive private rented accommodation. All this would have been at a cost to the taxpayer and would have been avoidable with the proper regulation of loan companies.
I am afraid that this case also highlights the crucial role of debt advice in starting to resolve people’s problems. Community Links tells me that it has lost all legal aid funding for welfare benefits and debt advice as a result of Government cuts, amounting to more than 700 cases a year, each of which would be more likely to lead to ongoing costs for the taxpayer, rather than individual, one-off payments and interventions.
Community Links also tells me that the loss of funding for advice services means that struggling families are finding it much harder to access support when they need it and are getting deeper into crisis. The solutions—eviction and homelessness—cost the taxpayer money and we must not forget that.
I welcome the Bill’s provision that lenders should signpost customers to free, impartial advice when they are turned down or miss a payment. I also welcome the potential levy on lenders, specifically to pay for additional debt advice through the Money Advice Service. I hope that the Financial Conduct Authority takes note of that when it assumes responsibility for the sector in April 2014.