Lyn Brown
Main Page: Lyn Brown (Labour - West Ham)
Lyn Brown (West Ham) (Lab)
I add my hearty congratulations and thanks to my hon. Friend the Member for Sheffield Central (Paul Blomfield) on his success in securing his private Member’s Bill, and for choosing this vital topic as its subject.
I regret to say that many people in my constituency find themselves in a situation where they have to resort to payday loans and other short-term, very expensive borrowing. Of course, in my part of east London using short-term credit is nothing new. In years past, my family used the pawn shop, as did many others in their communities. It helped out when the week’s money would not go quite far enough to meet the week’s outgoings. However, payday loans are in a different, far more pernicious league, and people are in a very different and more difficult place, with precarious unemployment, falling wages, soaring house bills, the bedroom tax, the benefits cap and rising food bills, along with heating and power costs. It is an ugly and toxic web that brings anxiety and stress to households. It makes it much more difficult to have a stable and resilient family life, and it undermines the entire community.
One of the factors in my constituency that is driving these difficulties is the proliferation of the zero-hours contract, which, in my view, takes us back to Victorian days and the days of my grandfather standing as lump labour on the dockside, hoping that he might earn enough money to feed his family. These contracts are extraordinarily exploitative and need to be regulated in the same vein as the providers of high-cost credit.
After three months of working for a company and being told regularly that he was doing a really good job, one constituent—I will call him Otis—was told to buy more work shirts, only to be told that very same week not to come back the following Monday. He was given no reason, no explanation and no notice. It is for such reasons that people feel helpless and surrender to the advertised images of a friendly, carefree, kindly world in which all is well and money is plentiful and freely given.
Philip Davies
I agree with an awful lot of what the hon. Lady has said so far about the cost of living and how difficult families are finding it at the moment. Does she agree that one of the better solutions would be to try to find ways to reduce the cost of living so that they do not feel the need to go to payday lenders in the first place—perhaps, say, through abolishing the BBC licence fee or voting against the Energy Bill, as some Government Members did, which is putting up the price of energy unnecessarily?
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.
Mr Robin Walker
I agree with the hon. Lady about the importance of free financial advice—she gave a good example of that from her constituency—but would she not agree that, potentially, this should be extended beyond the Money Advice Service to other voluntary bodies that provide free financial advice and do so much for our constituents?
Lyn Brown
I absolutely agree. Community Links is not a money advice service, per se; it is a general advice service, and a good one at that.
The second case that Community Links told me about also illustrates why the Bill is needed. The case is that of a single woman with three dependent school-age children—nine, 12 and 16—living in council accommodation. She lives with slight learning difficulties and experiences problems with literacy. She currently has a part-time job, receiving a salary of £557 a month, with working tax credits of £240, plus child tax credit and child benefit. When she visited Community Links, she reported council rent arrears and difficulty meeting regular utility bills, and was finding it difficult to live on her income. She also began to use easily available payday loans to supplement her income.
At the time of her initial visit, the total value of the loans was £977, which was renewed—rolled over—each month, to supplement her income. She also had unsecured credit of £14,000. Payday loans were used for regular living expenses; for example, child minding, school meals, household bills and travel to work. The client did not fully understand the long-term implications of interest payments at all, or of using payday loans for family expenditure. There was simply no understanding. Community Links is currently assisting this woman by applying for a debt relief order. The proposal in the Bill to determine and regularly review the number of roll-overs and a limit on the number of loans per year would help people such as this woman.
It is certainly no help to allow—indeed, to encourage, through attractive advertising and inadequate regulation—almost unrestricted access to expensive credit, when advice and support to manage debt is so much more appropriate. An existing alternative has already been spoken about in this Chamber: the credit union movement. I have direct experience, from my time working in Waltham Forest, of establishing a credit union. I am delighted that Justin Welby, the Archbishop of Canterbury, has called on church parishioners to lend a hand to credit unions, so that they can provide an alternative to payday loans. The Waltham Forest community credit union was ahead of its time, because it was set up by a confederation of churches in the borough. With the skills, financial experience and premises and halls at the heart of communities that it offers, the Church is exceptionally well placed to help the credit union sector to grow and thrive.
Credit unions often have difficulty in establishing themselves because they do not have the basic seed funding that they need to grow to the level at which the membership of the union makes it sustainable. It would be good if my hon. Friend the Member for Sheffield Central could find a way in which the Bill could be amended to nurture credit unions so that they become an alternative to the payday loans system. There would be a just logic in imposing a levy on payday lenders to support the development of credit unions, because the problem would be funding the solution.
I commend the principles and provisions of the Bill. It would make the market fairer by regulating the advertising of payday loan providers, requiring clear information on the cost of loans and introducing a range of measures to protect borrowers in difficulty. In particular, I commend the Bill because it would give the FCA the ability to prohibit
“specific features of high-cost credit”,
including the amount of credit that can be advanced, the level of default charges, charges related to the use of a continuous payment authority, roll-over and repeat lending, and obligations on loan guarantees.
Those are the issues that are most often brought to me by the advice services in my area and I am sure that they are the types of problems that hon. Members on both sides of the House encounter at their surgeries. Those issues are at the heart of the irresponsible lending and repeated rolling over of unpaid loans that cause so much harm and misery to borrowers and families. The provisions of the Bill are greatly needed. They would help people in our communities who are vulnerable to exploitation, and who need and deserve our support.
Barbara Keeley (Worsley and Eccles South) (Lab)
I am pleased that there is a little time left for me to speak. I pay tribute to my hon. Friend the Member for Sheffield Central (Paul Blomfield) for introducing a Bill that addresses a number of serious issues in respect of payday loans. It is clear from today’s debate that such loans are of concern to many hon. Members.
The Bill is important because, as my hon. Friend the Member for Glasgow North (Ann McKechin) said, we have a weak regulatory system for high-cost credit. Citizens Advice tells us that self-regulation of the payday loans sector has not worked. Since the introduction of the industry’s good practice customer charter in November 2012, Citizens Advice has run a survey to help people who have payday loans check whether their lender is sticking to the charter. The results show that the charter is not being met to a surprising degree. Payday lenders are failing to treat people fairly and are breaking 12 of the 14 promises laid out in the charter.
The Citizens Advice survey also shows that lenders are not making adequate affordability checks. I am glad that that problem has been referred to repeatedly in this debate. There are many examples of customers who get into financial difficulty not getting the help that they need. Some even find that the lenders, rather than helping them, are positively obstructive to their attempts to pay off their debts.
My hon. Friend the Member for North Durham (Mr Jones) talked about the millions of pounds that are being made in the payday loans market. That market is growing very quickly. In 2008-09, it was worth an estimated £900 million. Last year, it was worth between £2 billion and £2.2 billion. That big increase is a sign of the growing hardship in our communities.
I welcome the measures in the Bill to deal with the serious pitfalls that are experienced by large numbers of borrowers, which we have heard about today. It would deal with opaque interest charges, the use of continuous payment authorities to collect repayments regardless of the borrower’s financial circumstances and the key issue of advertising, which we have talked about. Young and vulnerable people are bombarded with a saturation level of adverts and texts promoting payday loans.
Lyn Brown
I was going to say more in my speech, but I wanted to keep it short so that my hon. Friend and others could get in before the end of the debate. I was going to speak about those pernicious television adverts with the little old puppets who wander around. They just look so cosy. In fact, one of the young people who came to see me because they had difficulty with payday loans did not go to Wonga because it was for old people. Does my hon. Friend agree that the advertising targets vulnerable groups in our constituencies?
Barbara Keeley
It does target such groups, and those cartoon characters are pernicious, as is the use of celebrities, some of whom should be ashamed of endorsing such products and bringing misery into people’s lives.
The Bill provides that the Financial Conduct Authority shall have power to introduce an additional levy on lenders to fund a debt advice service, which is good. We have heard repeatedly in this debate about the misery that payday lenders are causing people, and it is right that they should fund debt advice services. Such services should be an integral part of the lending process, but that need is too often ignored. Given the profits and growth in the market that I outlined, it is only right for the high-cost credit sector to help with a levy to pay for debt advice services.
Citizens advice bureaux up and down the country are struggling with cuts to their grants from local authorities. I felt the need to enter a 10 km race, which I ran on behalf of my local citizens advice bureau. It was not the sort of help that Front-Bench colleagues can sometimes raise, but I thought it important for those at my local citizens advice bureau to understand that I was prepared to do something to help with funding. The funding of advice services is crucial.
I have three broad concerns about the way the payday loans industry works. The first, which we have heard much about, is the issuing of multiple loans, which is one of the biggest causes of defaulting on the repayment of a loan. Many examples have been provided by the StepChange Debt Charity, which reminds us that findings by the Office of Fair Trading highlighted widespread irresponsible lending. In particular, the scale of repayment problems shows us that such lending is not confined to a small group of rogue lenders.
In 2011-12, about 2.7 million loans—one third of the total—could not be repaid on time, or at all. That is serious, and plainly highlights the issue of affordability. Nearly two thirds of those seeking help with their debt from StepChange have more than one loan, and nearly one third have four or more. In Salford, a person who works at a college on the minimum wage told Salfordonline, a local community website, that she had taken out loans to pay both her rent and council tax—an example of using loans for everyday living costs similar to that presented by my hon. Friend the Member for West Ham (Lyn Brown).
That person said:
“I have poor credit so I went to Wonga, then I got into a mess with interest so I got other loans. At first it was £150, then £300, then I just started paying the interest. Then I got other loans to cover my living expenses, it was out of control and I was missing payments.”
She was finally forced to call in a debt management company, but that, too, was “for a fee”, making her problems worse.
A request for more than one loan should ring alarm bells about the applicant’s financial circumstances and their ability to pay, but no alarm bells appear to be in place in the officers of these lenders. We need tighter controls to ensure that requests for more than one loan trigger comprehensive debt advice, and a repayment plan with a proper assessment of a person’s ability to pay.
We have heard much in this debate—quite rightly—about the volume of roll-over loans where loans are renewed at the end of an initial loan’s repayment period. That business is increasing, and few mechanisms are in place to assess properly the ability of borrowers to repay.
The Office of Fair Trading states that three quarters of payday lenders—a substantial part of the market—are renewing loans without checking whether they will be affordable, even though a roll-over is a clear warning sign that a borrower might be experiencing financial difficulties. The OFT notes that payday lenders have a strong incentive to roll over loans as they make half their revenues that way. I welcome the provisions in the Bill that empower the Financial Conduct Authority to set limits on charges, including interest, and to restrict the ability of lenders to make multiple and roll-over loans.
StepChange tells us that since 2011 the average amount owed in payday loans has increased substantially by £400 to £1,665. On average, people now owe more than a month’s income in payday loans. Average monthly income is now £1,298, and the average owed in payday loans is £1,665. That is a key measure of lack of affordability. Sadly, in my constituency the average owed on payday loans is £1,673, which is even higher than the national average.
As my hon. Friend the Member for Sheffield Central detailed earlier, there is serious concern about how the industry uses and misuses the continuous payment authority. Many hon. Members will have heard about constituents —we have heard some examples today—who are trapped in a cycle of debt that is made worse when the lender uses the continuous payment authority to take money out of their accounts, regardless of the impact on the borrower. As we have heard, money is often withdrawn by the lender with no consideration for the borrower’s essential living costs. Indeed, an example given today by Salford’s citizens advice bureau is of a borrower who fears he will lose his home and his job because payday lenders have left him with only £1.17 a week from his weekly wage. He does not have enough money to travel to work, let alone pay for his other living costs.
Lyn Brown
One of the things that has come up in my surgeries time and time again is how telephone calls and letters from lenders imply to borrowers that their debt to a payday loan company is a priority debt. There is no explanation that the real priority is to keep a roof over their head: paying the mortgage or the rent, and the council tax. Does my hon. Friend have similar examples?
Barbara Keeley
Indeed. One difficulty is that the banks are not straightforward enough with their customers. I strongly support greater controls over the use of the continuous payment authority. People have to be allowed, however much or little income they have, to plan their own finances.
We know from all these examples, and the example cited by my hon. Friend, that not enough borrowers know that they have the right to ask their bank to cancel the continuous payment authority. The Bill gives the FCA the power to require lenders to provide information about the right to cancel from the outset of the loan. This would give people who took out payday loans additional peace of mind that if they got in a mess and things were not working out they could cancel it.
The third area of concern, returning to the point made by my hon. Friend, is the persistent and excessive advertising of payday loans. Citizens Advice tells us that advertising for payday loans has reached saturation point. The adverts are unclear on costs and the potential impact of failure to repay a loan. Also worrying is the use of celebrities and cartoon characters in adverts. How are we targeting a market of responsible borrowing and lending by using cartoon characters? Clearly, young families and vulnerable people are being targeted with blanket advertising on daytime television. It is when I exercise in the gym that I am confronted by this constant advertising, and I find myself wanting to turn away because I get so sick of seeing it. One 32-year-old worker told Salfordonline that he had used Wonga to take out eight short-term loans in one year. He said:
“I was working but needed a little extra cash to help out at home”.
He had used overdrafts and credit cards before but:
“The most recent loan of £200 was taken out over four weeks, with £260 to pay back. I was tempted because it’s so easy to borrow and all the adverts on TV don’t help. The fact that there are no credit checks helps a lot of people into bad financial situations.”
Citizens Advice feels that broadcast advertising for payday loans should be limited to after the 9 o’clock watershed, and should be prohibited from any programme likely to appeal to anyone under the age of 18. It also feels that the measures in the Bill are needed to stop marketing via text messages. The 32-year-old from Salford whom I just quoted highlighted the fact that payday lenders would hold on to his details for six years, and that he was expecting to be bombarded with e-mails and texts offering him more loans. He commented:
“I won’t be using”—
payday loans—
“again, but I wish I could just close down the account so there is no temptation. Once they get their teeth into you they never let you go.”
This morning, Paul Lewis’s money website raised the issue of payday lender QuickQuid, which yesterday sent lots of e-mails to people on its database. They might have been QuickQuid customers who had already paid off their loan, but they seemed to include people who had never paid it back. We have discussed the point about bailiffs; these threatening e-mails warned that action would be taken if the customers did not pay back the debt and that debt collectors would be sent in. It caused great alarm.
Research for Which? found that seven out of 10 payday loan users regretted taking out credit and that half had taken out credit they could not repay. Citizens Advice believes that the Bill would be a key step towards protecting people from some of the worst practices of payday lenders and help better to protect borrowers struggling to repay debts. I pay tribute to the citizens advice bureau in Salford, which gives great help and advice, and to citizens advice groups across the country. I am sure hon. Members might like to pay tribute to their own CABs.
Barbara Keeley
I went on a 10 km run to help my CAB; it was under threat, but we managed to preserve this essential service in my locality. Salford city council offered it accommodation, and it now runs an excellent service from a local council building. That has really helped.