Paul Blomfield
Main Page: Paul Blomfield (Labour - Sheffield Central)
Paul Blomfield (Sheffield Central) (Lab)
I beg to move, That the Bill be now read a Second time.
Philip Davies (Shipley) (Con)
On a point of order, Mr Speaker. Is it in order for the person who proposes that the House sit in private neither to vote for that nor to be a Teller for that side during a vote?
Mr Speaker
The hon. Gentleman is absolutely correct on that point, which is also not incompatible or inconsistent with my answer to the earlier point of order. The hon. Gentleman’s reference to “shouts” is correct: vote should follow voice. That is the well-established principle enunciated by “Erskine May”, which I exhort colleagues to follow.
Paul Blomfield
I thank Members on both sides of the House for their encouragement and advice. The supporters of the Bill, with four Labour colleagues, five Conservatives and two Liberal Democrats, almost perfectly reflect the composition of the House. The Bill has the support of many other Members, some of whom are here today and many more who cannot be here. That sends two important messages. First, regardless of how far the Bill progresses, Members’ desire to see statutory regulation of payday lending will not go away. Secondly, there is a growing consensus—not only across party, but beyond this place—on what the key components of the regulation should be.
In preparing the Bill, I have drawn on the advice of Citizens Advice, the debt charity StepChange, the Centre for Responsible Credit, Which? and local debt advisers in my constituency. I am grateful for all their support. I have consulted Members from both sides of the House who are involved in the all-party groups on debt and personal finance, on financial education and on credit unions. I hope that the Minister will agree to meet those of us who have been involved in that process as we take it forward. The Bill reflects the common ground of all those groups and offers a consensus on how we should deal in an holistic way with the problems of payday lending. It recognises the important role that the Financial Conduct Authority has to play from April 2014. It deliberately does not seek to tie its hands with over-prescriptive detail, but aims to provide a positive direction of travel to the FCA on the key issues. I hope that that direction of travel is consistent with Government thinking.
I am sure that hon. Members will wish to make many positive points and suggestions, so it is important for the Bill to progress into Committee where they can be considered in more detail. I am sure I speak for all supporters of the Bill when I say that I am open to that debate and the consideration of any amendments that are tabled. Other Members wish to contribute, so I will briefly set the context for the Bill and summarise its main proposals.
We all know that payday moneylenders are making millions from loans aimed at some of the most vulnerable. They target the poor and make them poorer, pushing them into unaffordable and spiralling debt with exorbitant charges. It is not the intention of the Bill to close down payday lenders, because, sadly, there are few alternatives for many people. However, many of the practices our constituents have experienced are truly appalling. It is those practices that the Bill seeks to stop. We seek to learn from countries where payday lenders have been longer established—in particular the United States, the land of free enterprise—and where effective regulation is the norm.
Philip Davies
The hon. Gentleman talks about exorbitant rates of interest. These loans tend to be of quite small amounts—a few hundred pounds—and for a very short period of time. How much does he think it is reasonable to charge in interest on a loan of £150 over two weeks?
Paul Blomfield
One of the points I made a moment ago was that it would be inappropriate for us to be over-prescriptive. It is right for the FCA to make evidence-based decisions on details of that sort.
Philip Davies
The point remains. If the hon. Gentleman believes that the amounts being charged at the moment are too high, he must have an idea in his own mind of a figure that would not be too high. I just wondered whether he could tell us how much interest on a typical £150 loan over two weeks he thinks would be sufficient to prevent him from introducing the Bill.
Paul Blomfield
I think that most hon. Members would recognise that the annual percentage rate—I will come on to APR later—that Wonga charges, which has just gone up to approximately 5,500%, is entirely inappropriate.
Lyn Brown (West Ham) (Lab)
Is it not a fact that loans are rarely £150 over a two-week period? The people accessing loans at high interest rates will have already been turned down elsewhere for credit with lower interest rates. A typical loan for Wonga et al is not £150 for just two weeks; the problem is that they roll over and over.
Paul Blomfield
My hon. Friend makes an important point, and I intend to come on to the issue of rollovers later.
Mr Kevan Jones (North Durham) (Lab)
Canada has a Conservative Government at the moment. It is interesting that in this country a £300 loan, whether in store or online, has an APR of 74% and 70%, whereas in Ontario it is capped at 7%.
Paul Blomfield
It is indeed. If we look across the United States and some other European countries where regulation is the norm, we see a variety of approaches to capping interest rates and capping the total cost of credit. That is also an issue to which I will return.
Barbara Keeley (Worsley and Eccles South) (Lab)
Is not the key issue affordability? I recently heard from a constituent who had to pay back £160 after borrowing £100 for a week. She could not afford the £100, and she certainly could not afford the £160.
Paul Blomfield
My hon. Friend makes an important point. Affordability is indeed at the centre of the Bill, and is an issue to which I will also return.
Ian Paisley (North Antrim) (DUP)
The average payday loan in Northern Ireland is about £270 over 14 days, on which I think approximately 55% interest is charged. The people who take out these loans are the most vulnerable in society and cannot afford to repay them. I welcome the Bill. There should be more regulation for these products.
Paul Blomfield
I thank the hon. Gentleman for his contribution. That is precisely the point that the Office of Fair Trading made recently. The suggestion is that the ideal customer for many companies is one who can afford to pay back the interest, but not the original loan. The debt is then rolled over and over. There is limited outlay for the company, which turns into a significant profit.
If I could make some progress, I want to address how the sector has grown in the UK. Back in 2004, it was worth only £100 million. By 2009, that had increased to £900 million and it is now estimated to be more than £2.2 billion. Between 7.4 million and 8.2 million new loans are estimated to have been taken out in 2011-12, causing serious debt problems across the UK. According to the OFT, approximately 2.7 million payday loans were given to people who could not afford to pay back on time, confirming many of the points that have been made. They make up a staggering one third of the total number.
The number of people needing debt support has exploded in the past year. The debt charity StepChange this week reported that during the first six months of 2013 it was contacted by 30,762 people—almost the same number as for the whole of 2012. The increase in average individual debt from payday loans has risen from £400 to £1,665 since 2011.
A series of damning reports in May underlined the urgent need for action. A survey by Citizens Advice found that payday lenders had broken 12 of their own 14 promises to reform the industry. Which? called for regulation to redress what it described as
“the imbalance of power between lenders and borrowers”
in a report that highlighted
“sky high fees and irresponsible lending practices”.
The Public Accounts Committee strongly criticised the OFT for failing to stop lenders targeting vulnerable people, highlighting its failure to hand out a single fine to any of the 72,000 firms in the market, and for only rarely revoking companies’ licences.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
I commend my hon. Friend on how he is introducing the Bill. Does he share my view that a priority for the Government should be the creation of more alternatives to payday lenders, particularly through measures to accelerate the expansion of the credit union sector in the UK?
Paul Blomfield
I very much agree with my hon. Friend. In my opening remarks, I mentioned that desperate people turned to payday lending because there were no alternatives; the need to develop those alternatives is a pressing issue, and one that I hope the Government will address. I did not think it could be considered within the scope of the Bill, but clearly it is very important. A number of credit unions are beginning to develop more imaginative products, while other financial institutions are also addressing the issue.
Richard Burden (Birmingham, Northfield) (Lab)
Does my hon. Friend agree that the Government could encourage the Post Office to get much more involved with credit unions by providing them with counter facilities and so on? Is he also aware that our former right hon. Friend, John Battle, is, at this moment, actively involved in doing just that in Leeds?
Paul Blomfield
My hon. Friend makes an important point, and one that has been discussed previously in the House. The role of post offices could be significant; and, yes, I am aware of John’s work in Leeds, which it might be useful to share more widely with Members; it is a very positive initiative.
Mark Durkan (Foyle) (SDLP)
Does the hon. Gentleman recognise the apparent contradiction on the part of some people who support legislation capping credit union interest—currently at 2% per month, although the Government propose to raise it to 3%—yet oppose any cap on the sort of predatory creditors his Bill tries to target?
Paul Blomfield
The hon. Gentleman makes a powerful point, and one that rankles with credit unions as they try to develop their support for people.
The first set of measures in the Bill relates to advertising and information. Citizens Advice recently published results from its payday loan survey on implementation of the sector’s own good practice customer charter. It found that 21% of respondents were not clear about total repayment costs. The Bill would therefore require lenders to display interest payable in cash terms, so that people knew and could compare the cost of borrowing in a consistent way to be determined by the FCA. The Bill would also require that lenders state all fees and charges—crucially including default charges—and the circumstances in which those charges would be invoked on loan applications, so that people were clear about what they were committing to.
Many organisations are tackling the promotion of payday lenders in their own way. I am delighted that on Wednesday the university of Sheffield announced that it was banning payday advertising from its campus, which the National Union of Students has called for nationally. Many football clubs have also taken a strong stand. I congratulate Millwall, Bolton Wanderers and, although all my life my heart has been on the other side of the city, Sheffield Wednesday on the stands that they have taken.
Paul Blomfield
Some people would call for that.
My Bill does not go that far, but it would require that all advertising carries a health warning about the nature of these loans and signposts people to free and impartial debt advice, as an option before they proceed.
The OFT highlighted the problem of
“a pattern of advertising that emphasised speed and easy access to cash, at the expense of giving customers balanced information about the cost of lending, the risks if things go wrong and the consequences of non-payment.”
The Bill, therefore, would require that advertising complies with rules set and regulated by the FCA, which would be absolutely in line with Government thinking; the Department for Business, Innovation and Skills has already commissioned a study on advertising of payday loans, and the FCA is keen to look into it. The Bill does not prescribe the rules, but it states that there must be rules. The advertising code for gambling illustrates the sort of approach that might be adopted as well as a possible restriction on the sponsorship of certain activities.
The Advertising Standards Authority recently banned three text messages promoting loans to young people out clubbing. The Bill therefore would require texts and phone calls not to be used to promote high-cost credit. It would also require lenders properly to explain liability to guarantors, where loans asked for them, and the signing of consent forms; credit brokers to provide borrowers with the names and details of lenders; and lenders to disclose details of lead generators to the FCA.
Following on from the point made by my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley), the second set of issues covered by the Bill relate to affordability. Although most lenders claim to assess affordability, the OFT’s recent report said that
“the vast majority of those we inspected were unable to provide us with satisfactory proof that they applied such assessments.”
Citizens Advice found that only 36% of respondents were asked questions to check whether they could afford to pay back the loan. The Bill therefore would require lenders to assess the affordability of loans and introduce an affordability ceiling to be determined by the FCA, either based on credit repayment as a proportion of monthly income or on the total value of loans.
The Bill would also provide for the FCA to set a cap on default charges and the circumstances in which those charges could be applied. It would require lenders to share information with credit reference agencies as an interim measure, pending the establishment of a central real-time database requiring lenders to log details of loans and to seek information to ensure that they do not lend above the affordability ceiling determined by the FCA. It would also provide for a levy on the sector to run such a database, which would be a powerful tool to aid regulation and support evidence-based decision making.
As hon. Members have mentioned, we need to consider a cap on the total cost of credit, which Parliament has empowered the FCA to impose. The Bill does not seek a cap, but it would require the FCA to report on how it intended to exercise that power and to keep the issue under review. As mentioned, central to the concerns of spiralling debt is the issue of loans being rolled over. The OFT found that 28% of loans were rolled over at least once and that they accounted for 50% of lenders’ revenues. Furthermore, 19% of revenue comes from the 5% of loans rolled over four times or more; roll-overs are profitable business. As I mentioned earlier, the OFT said:
“Our evidence suggests that encouraging roll-overs is a deliberate commercial strategy of some firms”.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
Is this roll-over issue not an example of predatory capitalism of the very worst kind?
Paul Blomfield
It is indeed, and the Bill seeks to promote responsible capitalism of a better kind. It would also require the Financial Conduct Authority to determine a limit on roll-overs. We are not specifying at this stage what that limit should be, but looking for a solid, evidence-based decision.
The Bill also includes measures on debt collection, particularly with regard to continuous payment authorities. One case brought to me in Sheffield was of a single jobseeker’s allowance claimant who had obtained while working a payday loan from The Money Shop. Once out of work, he was unable to cover the £250 due from his bank account, but his bank told him that he could not stop the payment being made, which had deeply difficult consequences for him. Another case shared with me was of someone whose account was drained by a payday lender using a CPA, leaving him with no money for rent and facing eviction.
These are common problems, as other Members will be aware, so the Bill requires lenders to give customers three days’ notice of every CPA withdrawal and to ensure that customers are clear on their right to cancel CPAs. The Bill also has measures to ensure that lenders are not allowed to make charges for the administration of CPAs—a practice used by some—and includes a more general provision to allow the FCA to determine the circumstances under which CPAs should not be used, which might include cases where that would lead to essential bills going unpaid, which is an approach adopted in other countries.
As has been said, those who turn to payday lenders are often desperate. Before getting deeper into debt, they would benefit from advice, so the Bill seeks to promote debt support more effectively. It includes a number of triggers that would require lenders to signpost customers to free and impartial debt advice and, where a debt adviser is engaged, to require lenders to freeze charges and put in place an agreed payment plan. Some credit unions—including Birmingham’s Citysave credit union, which has launched a product to help people to pay off their payday loan debts over a 12-month period with a credit union loan—have found some payday lenders to be obstructive. The Bill therefore includes a provision for lenders to accept offers from third parties, specified by the FCA, to settle outstanding debts. The Bill also provides for the FCA to have the power to establish a new levy to support debt advice, about which I know the hon. Member for Worcester (Mr Walker) will speak in more detail. Finally, the Bill requires the FCA to determine enforcement powers to be used in the case of breaches of the Bill.
I would like to conclude—and to give other Members the opportunity to contribute to the debate—with an example from Sheffield of someone caught by the problems that the Bill aims to tackle.
Mr Christopher Chope (Christchurch) (Con)
Before the hon. Gentleman gives his last example, can he say what he thinks the impact of his Bill would be on the number of people seeking payday loans if it were to become law?
Paul Blomfield
As I said at the outset, the Bill does not seek to close down the sector, but I hope it would reduce the number of payday loans by signposting people towards debt advice, thereby opening them up to the kind of support that might lead them in other directions and prevent them from being caught in the spiral of debt. More importantly—others have made this point—by tackling roll-overs and other ways in which the industry makes unreasonable profits from unacceptable practices, the Bill will prevent those who turn to payday loans from being ripped off in the way that, frankly, they are at the moment.
Philip Davies
Following on from that, if the hon. Gentleman’s Bill came into law, what effect does he think it would have on the number of people who borrow from those who employ more “agricultural” means of recovering the money?
Paul Blomfield
That is an important point. It is one I have looked at in relation to the United States, where unregulated markets have been regulated. Where such regulation is introduced in the measured way that the Bill seeks, there is no evidence that people turn to the sort of illegal loan sharks about whom we should be very concerned.
Penny Mordaunt (Portsmouth North) (Con)
I congratulate the hon. Gentleman on introducing the Bill and other Members who have worked on the issue, including my hon. Friend the Member for East Hampshire (Damian Hinds). Does the hon. Gentleman agree that often people are in such dire straits from taking out payday loans at massive credit rates that they turn to loan sharks and other disreputable creditors in order to pay back the first loan?
Paul Blomfield
The hon. Lady makes an important point and she is absolutely right.
Let me conclude by giving an example from Sheffield of a single parent, not currently working but supporting three young children. She used various payday loans from different companies to pay household bills and found herself trapped in a spiral of debt. The Money Shop, for example, gave her three roll-overs at £30 a time. It used a CPA to withdraw money needed for essential household bills from her account and she subsequently fell behind with her rent. When she approached the companies, they were very unsympathetic. The Cheque Centre was at one point calling her five to seven times a day. She feels, as many Members of this House do, that payday loan companies prey on the most vulnerable, offering credit to those who have no realistic prospect of paying the money back. This House has a responsibility to ensure that that does not happen. That is why I commend the Bill to the House.