Mark Durkan
Main Page: Mark Durkan (Social Democratic & Labour Party - Foyle)
Jo Swinson
I will confirm that we do not believe that this Bill is the best way to tackle the significant problems in the industry. Obviously, it is up to the House to decide, as is always the case with such matters, whether the Bill should go into Committee, but I and my Government colleagues will not support it if it goes to a vote.
Mark Durkan
A few moments ago another Minister, the Under-Secretary of State for Health, the hon. Member for Broxtowe (Anna Soubry), said that policy should be made on the basis of evidence from elsewhere. There is clear evidence from many other jurisdictions—not least at least 13 states in the United States of America—that competent legislation and regulation exactly such as those proposed by this Bill can be effective and telling. Why are the Government rejecting moving on the basis of evidence and examples from elsewhere?
Jo Swinson
We absolutely are moving ahead on the basis of evidence. We have legislated on this issue. We are transferring the issue of consumer credit to a new regulator. It is not as if there is no legislation. We agree that tough regulation is needed to deal with the significant problems in this market, and that regulation is happening. I have confidence in it and in what has happened already, which I will set out. This is about whether further legislation is needed at this juncture and I think that that is the only issue about which there is slight disagreement.
Jo Swinson
The disagreement may be slight, but it is on the basic principle of whether the FCA is best placed to regulate these matters or whether the Government should mandate it to do so through legislation. That is a significant difference in principle.
Jo Swinson
I said that I would give way to the hon. Member for Worsley and Eccles South and then make some progress, but I will be happy to take further interventions later.
Jo Swinson
I will give way to my hon. Friend the Member for Shipley and to the hon. Member for Foyle (Mark Durkan), and then I will make a little more progress.
Mark Durkan
Perhaps the Joker.
A few minutes ago, the Minister made the point that the problems are complex and that the solutions will not be simple. Why, then, is she adopting a position of leaving it to the untested, unproven role of the FCA? Simples. That seems to be the Minister’s position and seems to contradict the very arguments that she is making about the nature of this problem. I hope that the role of the FCA will work, but it will be one role among its many other competing responsibilities. We as a Parliament have responsibilities, too. The hon. Gentleman’s Bill is giving us the chance to meet those responsibilities.
Jo Swinson
I understand the hon. Gentleman’s point, but, first, the Financial Conduct Authority is not the only thing that is happening; and secondly, because of the complexity, it is better to have a regulator that is able to make rules and to change them quickly, because markets change quickly. That is the whole point of having a regulator that can be responsive. Otherwise, if primary legislation sets out everything prescriptively, it is much more difficult to respond to changes in the market. Indeed, the Financial Conduct Authority has also made it clear that this is a priority for it. I hope that that provides some reassurance.
Mr Thomas
The hon. Lady makes an extremely good point and I hope that even at this late stage her words might encourage the Minister to encourage the Whips to allow the Bill to progress to Committee so that we can talk these issues through in more detail.
The OFT’s report in March demonstrated the clear need for many of the measures proposed by my hon. Friend the Member for Sheffield Central. Indeed, I was struck in late June by the fact that the OFT, in the rationale behind its reference of the payday lending industry to the Competition Commission, asserted that payday lenders appear to derive up to 50% of their revenue from loans that are unaffordable. Borrowers essentially pay far more than expected through roll-overs, additional interest and charges. The OFT seems to be saying, albeit very politely, that £1 billion of the £2 billion the industry was worth in 2011-12 was made by exploiting the most vulnerable. Those are business practices of which the sheriff of Nottingham would be proud.
Important as the Competition Commission’s work will be, my hon. Friend’s Bill gives the House an opportunity to put in place a series of sensible reforms. He shrewdly allows time for consultation on the details and I welcome the opportunity the Bill gives for new powers for the FCA to restrict the amount of high-cost credit that can be advanced to an individual, to limit the level of charges, to deal with the roll-over lending issue that many Members have talked about as well as the way in which advertising takes place, and to require lenders to help fund debt advice.
It is important to acknowledge that there is clearly a market for short-term lending and that the alternatives to high-cost credit are either not available or not as flexible or responsive as many consumers would like. Clearly in our collective response as policy makers we need to avoid being so draconian that we completely kill off interest from responsible businesses as that would make people vulnerable to illegal moneylenders—loan sharks.
As well as the actions advocated by my hon. Friend the Member for Sheffield Central and the work of the OFT and Competition Commission to root out the worst behaving businesses, more action is needed to create viable alternatives to the payday lending business model. In days gone by, the social fund might have offered a credible alternative to a payday lender, but the cuts to the fund and its devolution to local authorities mean that access to social fund loans is increasingly a postcode lottery.
Credit unions are the other key alternative. The cost of a single loan with a credit union can be hundreds of pounds cheaper than a high-cost credit loan. Two examples are worth sharing. A £300 loan taken out over 52 weeks from Provident Financial at 272% APR costs £246 in interest. The same loan from a credit union for the same period at their maximum 26% APR costs just £38 in interest. That is dramatically cheaper. A £300 payday loan from Wonga at 4,214% APR over just one month costs £95.89 in interest. The same loan from a credit union costs just £6 in interest.
Sadly, in this country credit unions are still too limited in their reach and coverage. The Government, to be fair, have continued, like the last Labour Government, to invest in credit unions and to make sensible reforms, but a bolder set of measures is needed to reform the reach of credit unions. In the UK, just over 1 million people are members of credit unions, and I declare an interest as a member of the Rainbow Saver Anglia credit union and Harrow’s M for Money credit union.
Local authorities, social housing landlords, and other parts of the public sector, such as Transport for London and the Metropolitan police, should have an obligation to promote credit union membership to their staff. In the US, Canada and Australia, and even in Ireland, more than 25% of the population are credit union members. Indeed, I think the biggest credit union in the world is Navy Federal in the US. It is the credit union for the American armed forces, with more than 3 million US servicemen and women, from special forces soldiers through to navy cooks, as members. Why do our military not have the same offer for our soldiers and sailors?
Mark Durkan
I speak as the Member of the House who has the highest rate of credit union membership among his constituents. Is my hon. Friend aware that credit unions are now reporting a concern that some debt advisers are telling people to max the loan that they can get from the credit union and use that to discharge their debt to payday lenders? Then the credit union is quickly hit with an insolvency voluntary agreement. That is having an effect now on lending decisions taken by credit unions. It is potentially limiting the good that they can do, which he is highlighting.
Mr Thomas
I am not aware of such circumstances in my area, but my hon. Friend makes a wider point about the crisis that payday lending has induced for many people, and its roll-over impact on credit unions. That seems to be another issue that would be worth teasing out in Committee.
Perhaps, when we get to Committee, I might tempt my hon. Friend the Member for Sheffield Central to look again at the wording of his clause 4 proposals for a levy on lenders to fund the Money Advice Service. Good as that is, I wonder whether a levy to help to fund the expansion of credit unions is equally urgent, particularly those credit unions in areas of deprivation that have the capacity to offer the equivalent of payday lending products, albeit with far lower interest rates, and therefore much more affordably. Perhaps if we are able to persuade the Friday wolves to allow the Bill to progress, we might have a useful debate on that point. We certainly need to be far more ambitious about the reach of credit unions.
Lastly, I gently suggest to my hon. Friend one further refinement to his Bill. We need a culture of openness across financial services, as exists, for example, in the United States. By that I mean that we need to get down to local community level—postcode level—to find out what financial services businesses are lending, how they are lending and to whom they are lending. The data should be anonymised, to protect individuals’ confidentiality. That would help us target much better where investment in debt advice, credit unions or community banking services is needed.
In Thamesmead in south-east London, not one bank branch is open. It is an area that serves some 55,000 people, and the nearest bank branch is 30 to 40 minutes away by public transport. Lack of access to bank branches limits access to mainstream credit and increases the vulnerability of people and the demand for high-cost credit products. To be fair to the Government, the banks have had some pressure from Ministers, as well as from our ranks, finally to begin to publish some of their lending data, although they are taking a long time to do so. Inevitably, the data will need refining to be useful. That openness is important. The FCA will need to be tough with the financial services industry to get useful banking openness data. We need to make sure that we include the payday lending industry within the scope of that published data so that we have a proper sense of access to financial services in each community. I hope that if the Bill gets into Committee my hon. Friend might be open to an amendment, perhaps to the schedules, that allows the FCA to impose as part of the mix of requirements a need for anonymised lending data by payday lenders to be made public.
My hon. Friend’s Bill has the potential to make a real difference in curbing the activities of the worst players in the financial services industry. His approach has been exemplary in working with Members on all sides of the House and in wanting to consult before imposing the detail of legislation. Even at this late stage, I hope that his arguments will persuade the Government to think again and allow the Bill to make progress.
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”?
Mr Jones
It is an excuse not to do anything. Those who oppose the Bill, including the Government, have to recognise that this is a real issue, and not only in constituencies such as mine. The hon. Member for Worcester, which is very different from Durham, said that these companies have gone into different areas and are using these aggressive tactics. I looked last night at the list of Stockton payday lenders. Some of their websites are very attractive—bright advertising and so on; clearly that needs to be regulated.
Why can we not act in this country? I think it was my hon. Friend the Member for Glasgow North (Ann McKechin) who mentioned the highly regulated American system. The other system that seems to work is the Canadian one, which can cap interest at 7%, as opposed to the rate on similar loans in this country, which is 70% to 74%. If those countries can do that and ban, for example, roll-overs, why can we not do it here? It is about political will, and that goes back to the point I made earlier.
Why do the Government not want to do those things? They have clearly been lobbied extensively by the sector. Some may argue that they have a direct financial interest in raising money from the sector and accepting loans off the individuals involved. They will not introduce the regulation that would help people. If we are looking at this issue seriously, we need to ensure that the policy is not only reactive but morally right. Legislation should be introduced, but the Government are putting their vested interests ahead of those of many of my constituents.
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.
Jacob Rees-Mogg
My hon. Friend is right; there are aspects of the money laundering regulations that set thresholds. For example, someone can bring only £10,000 into the country in cash—such a rule applies to many countries around the world in their equivalent currencies—and certain sums have to be reported, if they are cash transactions, by banks and so on. One part of the rules also deals with aggregations. Using a succession of small transactions is one way in which money launderers try to launder money, because the rules on higher sums have become relatively effective. Before legislating we should always want to look carefully at whether regulations that are already available could improve the system. The use of the two I have mentioned, relating to knowing one’s client and money laundering, would put a strong burden on the payday loan companies to ensure that they were lending to people they at least knew really existed and about whose financial circumstances they knew something. They would, thus, be able to lend to people who had a better chance of paying back.
The issue of people having a better chance of paying a loan back is important, because payday lenders have a cavalier approach to how they lend and so they build into their interest rate a high level of default, which means that people who can pay back, even though they may not be the greatest debtors, pay a much higher interest rate than would otherwise be necessary for them. If the business of the payday lenders was more tightly regulated so that they knew their underlying client and if the level of bad debt was brought down, the rate of interest would come down and the problem would be reduced in that natural and evolutionary way, rather than by trying to set caps and controls.
I have great difficulties with caps on interest rates, for the straightforward reason that no business is going to make a small loan if the interest rate is capped, because the administration of that loan will simply be too expensive to make it worth while. A £100 loan is likely to involve £5 to £10 of administration, whether that loan lasts for a day, a week or a month. So the rate for a week is extraordinarily high because it is being compounded over the course of a year. Setting caps is therefore not the right way to proceed, because it takes away the ability to borrow from the people who are most in need of these smaller sums at the bottom end of the scale.
The truth is that the bigger the borrower someone is, the better the interest rate they are likely to get. The hon. Member for North Durham (Mr Jones) talked about the Conservative party borrowing at 3.5%—of course it borrows at that rate. People who are borrowing millions of pounds pay low rates of interest, because usually there is some collateral against the loan, they are more likely to have a track record on lending and the interest rate covers the administrative cost. Where someone is paying 3.5% on a £5 million loan, the administrative costs are comparatively negligible. On a £100 loan repayable within a week, the 3.5% is so negligible that it would not begin to cover the administrative costs, and so what does the holder of capital do? They do not make the loan to the individual who needs it to get through that weekend. We must be careful about what we seek to regulate. If we seek to regulate one aspect of the system, we may well find that the unintended consequence is that the people who are most in need of this source of borrowing are cut out of the market altogether. In that case, they have no alternative but to go to the loan shark.
Mark Durkan
Does the hon. Gentleman not recognise that what he has just mentioned is already in statute among the things that the regulator would have to consider in relation to any of its other powers or options?
Jacob Rees-Mogg
The Bill is calling on the regulator to exercise those powers and I know that there was a vote in this Parliament to encourage the regulator to investigate the issue. That takes me back to my point and that of the hon. Member for North Durham: Parliament ought to decide these matters. We cannot simply say that this is too difficult for us to do, with all the resources we have and as the representatives of the British people, and that we will therefore hand it over to these grand panjandrums. Parliament’s job is to set the laws, not to delegate the powers to set the laws to unaccountable and unelected bodies. We have to stand at the next election saying, “These are the laws that we have passed,” not, “Well, we think this is frightfully difficult so we have decided on a quiet Friday that we will not do it ourselves but will past it on to the FCA.” That seems to me to be not only an abandonment of our duty but most unsatisfactory from the electorate’s point of view.
The electorate cannot hold the FCA to account. I do not even know the name of the chairman of the FCA, which is a lacuna in my knowledge that I probably ought to put right speedily. He is probably a very great man, but he is not accountable to the people of North-East Somerset. That is unfair on my constituents. There ought to be accountability on these crucial decisions that will affect their lives. There is no question about the fact that payday lending is an important part of the lives of people who are involved in it, and a very difficult one.
Mark Durkan
The hon. Gentleman must forgive me, but I think I recall him saying in a previous debate on possible financial regulation that Parliament should just leave things to the Governor of the Bank of England’s eyebrow, the way things had always been done.
Jacob Rees-Mogg
The great thing about the Governor of the Bank of England’s eyebrow is that it is not a matter of statute. We have not put it in statute—indeed, I cannot think how that the statute would be phrased—that the Queen’s most Excellent Majesty, her Lords temporal and spiritual and her House of Commons have decided that the Governor of the Bank of England’s eyebrow should have legal force. It is not an accountability issue. I must confess that such legislation was rather better drafted under Henry VIII than nowadays. The language used in the section I read out has the greatest attractiveness and beauty, whereas ours is rather more mundane, but even in the 16th century—before the Bank of England was even founded—the Governor’s supercilious qualities could not have been brought into statute law.
Let me move on to one of the issues raised by my hon. Friend the Member for East Hampshire (Damian Hinds), who made an absolutely fabulous speech and covered the issues with the greatest intellectual rigour. He got into the question of supply creating its own demand and demand creating its own supply. There is an important quality about demand creating its own supply and that is that it tends to reduce prices. If we regulate, we find that we interrupt the natural creation of the supply that comes through. Let us look at it this way: if more payday lenders come to the market, they provide excess capital that is available. They want to lend it out and they have it on their books. They then have to advertise and build up the market. They produce the supply available, but others are doing the same. There is then an excess supply in the market and the demand will fill it up, but only if the price falls. If we regulate in such a way as to reduce the supply that is coming on board so that that excess of credit is not made available in the market, the price will increase as there will be fewer people participating in the market.
Jacob Rees-Mogg
I am grateful for that suggestion; I think it is a very useful one. I would be very happy to see a levy brought in under the Finance Bill. I have no objection to a levy being placed on these people; it is just who places it. It needs to be placed by Parliament because that is a hard, constitutional right and power, not by an independent regulator.
Mark Durkan
Would not the answer then be simply to say that any levy proposed by the regulator would be subject to a resolution of Parliament?
Jacob Rees-Mogg
The hon. Gentleman has found a brilliant middle way. I do not usually like third ways, because one is going down the middle of the road and is most likely to get run over, but on this occasion I am in cross-party agreement with him.
To have the matter come before Parliament in such a way that Parliament can say no is infinitely preferable. I would also like it to be back-dated to cover the other levies. This House ought never to give up its powers accidentally because, in a sort of fit of absent-mindedness, we have passed the ability to tax to other independent, or nominally independent, bodies. That would be an error.
I want to indicate firmly that I think this Bill is very good in its intention but not in its practice. That is true of a lot of Bills on Fridays, and that is why the Government so often oppose them. I absolutely accept that there is a problem and that payday loans are an unattractive part of the capitalist system, but this House must always be careful that the solution is not worse than the problem.
As I said, the problem, in essence, is one that has existed from time immemorial. It is not a new problem that we have suddenly come up against, and unfortunately it is not one to which there has ever been a neat and easy solution. Caps have been tried again and again. A cap was the idea of the Council of Nicaea in the 320s AD, and it was repeated under Henry VIII in 1545. Those caps did not work and there is no reason to suppose that new caps will work. Why? Because people need to borrow the money when they need to borrow it, and therefore they will go out and find it one way or another. The more they are pushed into an unregulated and almost criminal arena, the worse it will be for them. It is therefore very important that this House does not rush to do something because it seems like a good idea when in reality it will not solve the problem and risks making it worse.
This House ought never to legislate when solutions already exist on the statute book. We see this time and again. In both Division Lobbies, the Acts passed, going back to the last war, are listed in volumes of ever-increasing thickness. The problem is that these volumes have laws going into them that are reprinted, re-enacted and re-passed because nobody bothered to look back to see whether they were already on the statute book and whether there might be a better answer already there just waiting to be implemented if only people had the gumption to get on and do it.