Financial Services Bill

Debate between Paul Maynard and Yvonne Fovargue

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Wednesday 13th January 2021 Commons Chamber

[Paul Maynard (Blackpool North and Cleveleys) (Con) [V]]

It is a pleasure to speak in this debate in support of new clause 7, which is in the name of the hon. Member for Walthamstow (Stella Creasy), who I gather will speak shortly. It is absolutely vital that we accelerate regulation of this newly emerging sector before we see the sort of problems that emerged in the rent-to-own sector in recent years.

I am glad to hear that the Government, the FCA and the sector recognise that regulation is necessary, but I also note that there is little consensus over what that regulation should consist of, nor what legislative vehicle it could be contained within. I further note that support from the sector is conditional on it being, in its view, in consumers’ interest. I am not sure it should be the judge of what is in consumers’ interest.

Clearly, it is far better for people who can afford to pay just once to do so, but I recognise that there is a legitimate market for a well-regulated “buy now, pay later” sector. However, it has to ensure that consumers are not taken advantage of. The sector likes to point out that the fastest rate of growth is in the over-40 market, thereby suggesting that its users are among the more financially responsible, but younger customers represent the majority of those missing payments and putting themselves at risk by having recourse to risky forms of lending. As innovative as “buy now, pay later” might be, that innovation is driven by competition—by a desire for market capture by the major players. So while one proposes a voluntary code of conduct, another chooses not to sign up to it. That makes me worried as to the willingness of the sector to co-operate with the regulators. What we do not want to see is regulatory capture by these major players.

I want to ensure that those who miss their payments are unable to make further purchases with not only one provider, but all providers of BNPL. If Klarna prevents a further purchase by a consumer because they have already missed a payment, they should not be able automatically to switch to Laybuy, Clearpay or one of the other providers. Moreover, these providers should not be a default purchasing option on a website when a consumer seeks to make a purchase; this is a clear example of the growing lockdown phenomenon of ‘emotional e-commerce’. I recognise that this Bill is not perhaps the right vehicle to manage how the websites are laid out, but this is a clear driver in the growing use of this form of payment.

I have already seen the problem debt my constituents have accrued in the rent-to-own sector, and those firms also sought to portray themselves as acting responsibly to protect consumer interests. I do not want to see those same constituents using BNPL schemes and getting into a similar situation, with a similar rhetoric from those providers. Regulation is now needed sooner rather than later, before these commercial models become ever more entrenched. With every week that passes, the influence of BNPL increases, the more we see the adverts on the TV and the more we see it appearing when we make online purchases. The lack of consumer protection in this regard puts more of those purchasing online at risk.

I very much welcome what the Minister has had to say to me, both in the House and privately. I look forward to seeing the Woolard review and hearing the next steps that will be taken to make practical progress on this very pressing matter.

[Yvonne Fovargue (Makerfield) (Lab) [V]]

It is a pleasure to follow the hon. Member for Blackpool North and Cleveleys (Paul Maynard). I, too, want to focus on new clause 7, but I also want to mention breathing space, which is addressed in new clauses 22 and 23, and the statutory debt repayment scheme, which is dealt with in clause 32. We all know that BNPL has exploded in the past year. More and more retail outlets, and even online gambling companies, are using it, and it is being sold to companies on the basis that, on average, customers spend 40% more. It is also being sold to customers as an easy way to spread the load, with the thought, “There are no credit checks so it is not debt.” But of course it is, because people are using someone else’s money to pay and it then has to be repaid. I looked into the business model for one company and found that 25% of its income is predicated on late fees and people being unable to pay on time. Surely that has to ring alarm bells, with the echoes of the high-cost lenders and their practices. The regulation is needed sooner rather than later and I look forward to a swift response to the Woolard review.

Breathing space is welcome, and I have long called for it; 60 days will often be enough, but there will be a need for flexibility in exceptional circumstances. The scheme was designed prior to the pandemic, where people are furloughed, have lost their job or have a period of illness, and 60 days is not long enough to give people time to recover from a temporary financial difficulty caused by the pandemic and set up a long-term solution. People affected by the pandemic simply need a bit more time to straighten themselves out. I also think that the midway review needs to be looked at again. It simply wastes time and resources, which are scarce in the debt field.

Breathing space alone is not enough, however, given the impact of coronavirus on household finances. Bailiffs’ visits should be suspended, as they were during the first national lockdown, and other enforcement action should be halted when a debt adviser alerts the creditor that a client has financial or other issues due to coronavirus. We should also be suspending the use of non-priority benefit deductions from universal credit and bringing forward plans to extend the repayments over a longer period.

Moving on to the statutory debt repayment plan, I am pleased that the intention is that people seeking debt advice should not be charged for any aspect of the plan. It has always seemed counterintuitive that people in debt should be charged to get out of the very same debt. However, there are areas that need to be tightened—for example, where creditors are objecting to the level of payments. That needs to be seen within the existing debt advice methodology and budget standards. We cannot have creditors objecting just because they do not like the level or they think that someone else has more. There is a common standard, and creditors need to accept that.

In general, the Bill is a welcome step forward in assisting people in debt, but the landscape of debt solutions is complicated and difficult to navigate. I believe that a full review of all debt solutions needs to be undertaken to clarify and simplify, and to ensure that people in debt are always able to access the solution that best suits their needs.

Rent-to-own Sector

Debate between Paul Maynard and Yvonne Fovargue

Tuesday 14th July 2015 Westminster Hall

[Paul Maynard (Blackpool North and Cleveleys) (Con)]

I beg to move,

That this House has considered the rent-to-own sector.

It is a pleasure to serve under your chairmanship for the first time in this Parliament, Mr Hollobone, and to see the Minister in his place.

As is not traditional, I shall start with a string of apologies, particularly to the UK public affairs sector: it has experienced great confusion over the past week, having seen the title of the debate and been desperate to tell me all about rent-to-own home ownership. It will be fascinating to see whether the Opposition speakers have been similarly wrong-footed and have furiously to rewrite their contributions.

My second apology is to the hon. Member for Makerfield (Yvonne Fovargue), because I unwittingly gazumped the topic of the report published just before the election by the all-party parliamentary group on debt and personal finance, which she chairs. I discovered that only after I requested this debate a few weeks ago. I know that she will have plenty to say—indeed, earlier we discussed the fact that the two of us could debate this issue for an entire day. The Minister will be relieved that we have only 90 minutes, but I am sure that we can fill them. The hon. Lady will have to forgive me if I occasionally borrow from the APPG’s quality report.

The real inspiration behind this debate is not the public affairs sector—thank goodness—or even the APPG: it is what I see in my constituency on a day-to-day basis. I see families having to cope with the unexpected financial shocks that occur in day-to-day life. We often see the rent-to-own sector as a key component of that unexpected shock—when these things happen, the RTO sector becomes part of an almost transformative experience in how people deal with personal debt. I have spoken to my local food bank, citizens advice bureau and credit union, and they all tell me the same things.

I get frustrated when Members simply read out a list of case studies—I could easily do that for 20 minutes; I want to read out one that encapsulates the problem. The person in question has mental health problems and physical disabilities, and he is highly vulnerable. He does not understand contracts and finds it very difficult to assert himself and say no. He made a purchase from BrightHouse, and when he goes in each week to pay off his debt he comes under pressure from the sales team to buy something else. He finds it very difficult to cope. He has bought a laptop, a TV, a DVD player and a tablet, even though he cannot do emails on a computer and just uses Google.

As soon as he paid off the laptop, he came under immediate pressure to buy something else. The sales team know that he gets mobility allowance, and seem to think that it represents acceptable funds. He struggles to pay the rent and top up the electric meter. He defaulted on the payments for his mobile, which was repossessed. He was pressured into joining Utility Warehouse, so cancelled with BT, but because he cannot understand contracts, he did not realise that that would involve an £800 financial penalty for leaving his contract early. He is now having to pay off that as well. He still goes into BrightHouse every week to pay off his items, and finds it a stressful and fearful experience.

I could fill the rest of the 90 minutes with similar case studies. I am particularly troubled by the suggestion that those who are most vulnerable, who have the mobility allowance, are somehow fairer game than any other set of customers when it comes to extracting the extra few pounds a week that they rely on. Nevertheless, I should make it clear that I am not here just to bash BrightHouse or the wider RTO sector. Theirs is a legitimate business; there is a case for providing short to medium-term credit to people who need it. I recognise that, with a 70% market share, BrightHouse will get more than its fair share of horror stories, but the sector employs many people across the country, fulfils a consumer need and occupies space on the high street that might otherwise go vacant. I recognise all that, but it does not change the fact that vulnerable people are being exploited in troubling ways.

The challenge for the sector is how it can adapt what it does in order to continue to perform its role without taking advantage of people. I want to consider the extent to which the private sector models are truly broken, if they are; whether they are appropriately regulated, and how that regulation can be improved; and whether alternative, socially-funded models are viable, adequate and the right way forward. It is worth pointing out that not all private providers are the same. A firm called Buy As You View already adheres to much of the findings in the APPG’s report. It actually argues for better regulation, but regulation that is also proportionate and fair.

There needs to be some consistency with the principle that credit has a role to play if the object for which someone seeks credit will retain value after the credit has been paid off. In other words, credit is probably not appropriate for things such as food or electricity bills, but it may be for a consumer good. There is also a wider issue about how we ensure that markets function in the best interests of the consumer. That is a key Conservative principle, but I do not want a partisan debate because this is a cross-party issue. We all have vulnerable constituents who are at risk of being sucked into a situation that they cannot get themselves out of. I cannot possibly hope to encompass the entire debate in my short contribution, but I do want to set out a handful of areas that the Government should pay particular attention to and to encourage the Financial Conduct Authority to focus on them as well.

In the centre of Blackpool are the bus stops where people get on the buses. It is a complicated one-way system: people get on at one place but the place to get off is half a mile around the corner. Where people wait to get on the buses is a branch of BrightHouse. There will be dozens of people standing at the bus stops and admiring the scene inside BrightHouse, which has lots of cheerful, bright consumer goods. There are bright-coloured sofas, settees and beds, and enticing goods such as TVs and iPads.

I am sure we can all imagine the range; it is very attractive and fetching. It is bright and modern, and it entices people with what they want in their lives. We live in a world where we are almost defined by what we own. I am tempted to stray off into a spiritual discursion about whether we are measured by what we own and whether that is good for us spiritually, but that is way beyond the Minister’s remit, and even that of the House. We will leave that to God himself.

People aspire to own, not to rent. I am concerned that the idea that the answer is to abolish the sector entirely, with people just renting, misunderstands people’s aspirations to own consumer goods. We should not place an artificial cap on what people want to own in life. Doing so would be a “nanny knows best” approach that fails to respect individual dignity. People on low incomes deserve the opportunity of ownership, but not in an exploitative market. When I think of my constituents and look at the typical customers in the RTO sector, there are broad similarities: 78% are female, 60% have children and 94% are in rented accommodation. Only 1% have hitherto used a payday lender. It is worth reflecting on that a little: although only 1% have used a payday lender before they go to an RTO provider, how many are using a payday lender by the end of their RTO experience?

The bulk of customers have an average of only £19 a week of disposable income to pay for these purchases. That does not represent a great degree of financial resilience. The rent-to-own model is about buying more and more goods over time, and they can quickly mount up. Of course, it is an appealing way to access credit. That misleading low weekly payment does not reflect either the entire cost after three years or what will happen as new items are taken on. I retain a degree of concern about how staff in these stores are being incentivised to sell more and more to each individual. Such incentives lead to perverse outcomes for the individuals concerned—they are not necessarily a good thing.

I will probably keep saying this for the next five years, but I represent the second most deprived Conservative constituency, which contains the fourth most deprived ward in the country. Right behind the Imperial Hotel—many will have been there over their time in the House—is Imperial Street, on which is a mother and baby sheltered housing unit. I have no doubt that some in that sort of sheltered housing may be transient and have experienced family breakdown, or worse, and will often need to furnish their houses rapidly and fully. They will need the full complement of consumer household goods. They cannot just buy one thing and then wait a few months, so they are often driven towards the rent-to-own sector, which is not always the right thing for them. It is a captive market: providers have no incentive to lower prices. Competition is neither transparent nor evident to such individuals, who may not have the necessary financial literacy to understand how to navigate their way through the market. The Blackpool, Fylde & Wyre Credit Union wrote to me and said:

“Some people do not understand the full cost, others do not believe they have a choice because they are frozen out from mainstream credit and have a lack of knowledge of alternatives such as Credit Unions.”

Some in the RTO sector take advantage of the lack of legal understanding of how the system works to encourage payments.

The pricing is unclear. I sent Zach from my Blackpool office on an undercover mission—it was actually rather transparent—to the BrightHouse around the corner to find out what was going on and to look at some of the prices. Zach spotted a Samsung TV on display with a product price of £1,053.13, but the total payable after three years of weekly payments of £18 was £2,808, including what they call “Five Star Service”, which is neither optional nor separately priced and appears to add some £400 to the product price. Just down the road in Tesco, however, the same product was available off the shelf for £1,049 with optional insurance extras. It is worth noting that insurance in the RTO sector also seems to attract interest payments.

The different elements, such as the goods themselves, the warranty cover and the insurance, are all lumped into one tempting weekly payment. After years of pressure, it remains hard to compare properly the products available in the RTO sector with what can be obtained by other means. The product codes remain different due to slight tweaking of the products, such as a different-coloured fascia which might add something to the end of the code meaning that it cannot be directly compared with what one might get in Tesco.

Second-hand or repossessed goods are sold as “pre-loved”, often costing more than a brand new item would somewhere else. The APPG found that about one third of products on sale in the RTO sector were pre-loved. That is not necessarily a bad thing if the credit is made more affordable as a consequence or if it meets the consumer’s need better and more cheaply than a hi-spec alternative, but that depends on the ethics, systems and processes in place in each individual RTO provider.

[Yvonne Fovargue (Makerfield) (Lab)]

Will the hon. Gentleman give way?

[Paul Maynard]

I will indeed: the hon. Lady will give me a chance to catch my breath.

[Yvonne Fovargue]

Getting someone to pay for goods and then repossessing them and selling them to somebody else for twice the price is a wonderful business model. Offence was taken when I mentioned that during the inquiry, but we have not yet been able to find out the providers’ break-even point, which is obviously commercially sensitive. There will be a break-even point, but providers can sell goods to someone else once they have been handed back voluntarily after, say, a year.

[Paul Maynard]

I thank the hon. Lady for that contribution, with which I have a degree of sympathy. Equally, an ethical provider bartering a customer down, because the pre-loved item is a better deal for that individual, can have a role to play. The hon. Lady is quite right, however, about the lack of transparency in the sector and the difficulty of assessing what different providers are actually doing. One cannot regulate in a non-transparent market, which may go to the heart of the matter.

The hon. Lady will perhaps make this point herself, but ownership requires one to make all the payments. One cannot own two thirds of a television. Some providers may seek to make exceptions when almost all payments have been made, but someone could make half the payments and still find themselves losing the product. I am unsure whether the regulations are clear or being applied consistently across the market. There is no mandatory health warning, as I believe payday loans now have—the hon. Member for Walthamstow (Stella Creasy) will tell me if I am wrong—saying that goods are at risk if payments are not made.

Shorter loan periods are certainly not advertised, and three years is the default option. I understand that shorter periods increase the weekly payments and make the deals less attractive to consumers, but why not sell products with more modest specifications or de-bundle the warranties or insurance, as companies such as Buy As You View already do? The three-year contracts matter dreadfully because of the nature of poverty. Child poverty has been discussed a lot recently due to the Government’s changes to the measurement—for the better—but behind that decision was some excellent investigative work about the ingrained nature of poverty and the churn rate. Around half of those in poverty in one year are not in poverty the following year. Around 10% are in persistent poverty, meaning three years out of four. If someone submits to a three-year contract, the probability that disaster could strike in one of those three years vastly increases. If more people could access one-year or two-year deals, the likelihood of having a problematic year might be reduced.

My local credit union said to me:

“The bigger issue we have seen is that people are not just sold one item. We have seen people with multiple debts to a weekly pay store. One customer on benefit income was paying for 8 different items at a total £120 per week (£520 per month) which would stretch the budget of the average full-time working person to breaking point, let alone the low-income people who tend to be the users of these stores. The fact that the goods may then be repossessed for non-payment introduces an element of fear that prioritises these payments in the customer’s mind causing them to pay the weekly pay store and falling into arrears with other essential bills.”

That might particularly be the case when customers have multiple disadvantages, such as mental health problems or a learning disability. It is simply unclear how such companies are protecting the vulnerable people who come through their door seeking to own a consumer good. No obvious assessment of affordability is built in to the selling process in some firms. I recognise that Buy As You View does assess affordability and rejects some 70% of applications, but it is almost unique in the sector in applying that degree of toughness. Such financial vulnerability goes beyond merely an inability to understand the annual percentage rate, and the cost to the taxpayer when vulnerable individuals reach crisis point has not been assessed. How vulnerable customers best access credit for goods is perhaps a separate issue, requiring particular attention, from the wider market of roughly 13 million low-income individuals who need to access low-cost credit for consumer goods.

I welcome the fact that the Government have extended local social welfare funds. It was a matter of controversy in the previous Parliament, but I am glad that they have taken that decision. Such funds are well used and well spent in Blackpool. Many councils may not be doing such a good job, but such funds should be maintained where they are well spent. We must consider the alternatives, however. The Minister is something of an expert on credit unions, some of which have tried to set up RTO providers. The APPG mentioned Smarterbuys in County Durham, which was set up by the Prince Bishops Community Bank.

Those are interesting models, which have something to offer, but I have concerns about their scalability and about the creation of a national network of different providers, all with slightly differing rules and regulations. The scalability is problematic, but I recognise that credit unions have an important role to play, in part because they often have to sweep up the consequences of an engagement with the rent-to-own sector that has not gone well.

What role might Big Society Capital play in inspiring innovation in the sector? Buy As You View is keen on a comparison website and, in the short-term credit market, the Competition Commission encouraged lenderscompared.org.uk, which is a properly regulated, independent price-comparison website in that sector. I can see no reason why we cannot have a similar website mandated by the Financial Conduct Authority or another body in the rent-to-own sector. It would be a great deal of help—in particular because many people use their mobile phones to shop—so that people can make the comparison at the same time and understand the best option.

I hope that the Minister accepts that there must be a fair regulatory playing field for the not-for-profit sector and the for-profit sector. We are not talking about bashing for-profit providers, simply because they happen to be for-profit providers—that would be a dangerous path to go down. There is already broad variety in the sector. We need well understood regulation that puts consumer needs first. I hope that the Minister, or the appropriate Treasury Minister, will meet me, perhaps the APPG members, the charities involved such as StepChange, the companies involved, and the regulator to look at how conduct can be improved across the board.

Will the Minister put on record his view that the FCA needs to focus on fair outcomes for the consumers, rather than only on inputs and what occurs before the individuals take their product away with them? We need to ensure that proper competition and choice for the consumer are the key indicators of effective regulation.

I would be grateful for some thought on how the sector can improve data sharing, not only to identify poor risk and prevent people from getting into problems, but to help the financially vulnerable, so that they can be identified and offered alternative means to access the goods that they need. I hope that the Minister agrees with me that bundling expensive warranties as a condition of the loan seems to contravene the principle that lenders ought to treat consumers fairly, which has to be at the heart of all regulation. Things should be transparent and clear for day-to-day consumer engagement in the shops, but in my view that is not occurring.

I want the Government to press the FCA to work more closely with the industry, to accelerate what it is doing and to ensure that we are as diligent on RTO as we were in the previous Parliament on issues such as payday lending. They are all part of the same financial resilience package.

Will the Minister also outline what steps the Government might take to improve people’s ability to manage their debts? Does he share my concerns about the examples that we have heard today of vulnerable people facing life-changing amounts of debt because of what is to all intents and purposes the mis-selling of consumer goods, credit and insurance?

[Yvonne Fovargue]

Will the Minister also review the advice available to people in debt? Managing one’s own money involves getting out of debt in the first place, then being able to manage the money. That is really important. A recent report on fee-charging debt management showed that 60% of the fees put people in a worse position, so we need to look at the availability of the free advice sector.

[Paul Maynard]

I am sure that the Minister heard that question. I am now trying to reach my conclusion rapidly, because I have been going on far too long.

Lord Freud has met with the debt-management charity, StepChange, but will the Minister agree to convene a cross-departmental working group consisting of the Departments for Business, Innovation and Skills, for Work and Pensions and for Education, and sector representatives? The issues stretch across Government and are not confined to the Treasury alone.

To finish, I want to make a point of principle with which I hope the Minister will agree. About four or five months ago I remortgaged my property, but it has never taken me so long to do so. I was locked in my bank for about six hours, or that is what it felt like, going through every last iteration. I understand why that is: we have to improve safeguards for borrowing, we have to reduce risky borrowing and we have to ensure that the banks are sustainable. Yes, my mortgage payments are a substantial element of my outgoings and part of my financial arrangements, but why are we not as careful about RTO-types of credit as we are about mortgages? If someone’s available disposable income is only £19 a week, even £12 a month is a sizeable payment. There ought to be a point of principle: it matters as much to those people how their consumer credit is regulated as it does to me how my mortgage is regulated.

We as a Government need to look much more closely at how we encourage financial resilience. We need multiple bulwarks for families against the unexpected—too often the unexpected leads us down a path to perdition financially. Proper and proportionate regulation, which does not seek to condemn the private sector simply for being the private sector, is the best way to allow people to fulfil their legitimate aspirations to own consumer goods.

I have asked a lot of questions and I have talked a lot today—I apologise to those present. I look forward to the Minister’s reply.

--- Later in debate ---

[Yvonne Fovargue (Makerfield) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I welcome the Minister to his place—it is all the better that he was a member of the all-party group on debt and personal finance in the previous Parliament. I also congratulate the hon. Member for Blackpool North and Cleveleys (Paul Maynard) on obtaining this important debate.

The rent-to-own sector is not well understood. People think it is relatively new on the high street, but when I was a citizens advice bureau manager I had run-ins with Crazy Georges, the precursor to BrightHouse. In many ways the sector operates under the radar and I hope that the debate will raise the profile of the issue.

As the hon. Gentleman said, the all-party group undertook an inquiry into the sector towards the end of the last Parliament, producing a report in February. We did so because we were concerned about a number of the issues, not least the fact that rent-to-own customers seemed to be paying about three times more for their televisions, fridges and sofas than they cost on the high street or elsewhere.

I hesitate to say this, but the pricing structure is complex and possibly deliberately so: not only is the base price of the goods high, but customers pay a hefty interest rate on the loan taken out. BrightHouse, Buy As You View and PerfectHome charge annual interest rates ranging from about 50% from Buy As You View to a 94.7% annual percentage rate, or APR, from BrightHouse. As the hon. Gentleman said, the interest is usually charged over a period of three years—not only on the price of the item, however, but on the expensive warranty-style service agreements, insurance and the delivery charge. Everything is bundled together.

The latter items are the most troubling of the whole package, because deals are almost impossible to obtain from the leading firms without those expensive extras. The firms vary on whether such additions are compulsory or optional—in fact, BrightHouse has agreed to make them optional—but in all cases linked insurance and service cover are being sold at the point of sale: it does not matter that the customer is already covered by a statutory guarantee or might have home contents insurance. Moreover, there is little chance of a new TV or washing machine breaking down these days, but the selling is such that the emphasis is on people wanting peace of mind—“Complete peace of mind for you.” Everything is bundled together.

Furthermore, the insurance policies only cover a single item against fire, theft and damage—nothing else. By contrast, a single home insurance policy might cover any number of items up to a value of £50,000. For example, in BrightHouse a £490 double bed costs £55 a year to insure against fire, theft and damage; I have not actually set fire to my bed recently, and it has not been stolen, either, but there we go. Cover for a £725 fridge-freezer would cost £80. By comparison, both those items, up to a total of £50,000, could be insured by Direct Line with a similar level of cover for £118 a year. The more items there are, the more problems there are. There are very few circumstances in which customers get better value for money from insurance than through a single home contents insurance policy. When multiple items are purchased, the value for money will obviously get worse.

As I said, the total cost is higher. In September 2014 a Samsung freezer with a five-year service plan was £644 at John Lewis—Which? found that when it shopped around—whereas at BrightHouse the total repayable over three years was £1,716, three times the price. I accept that people cannot always afford to pay up front, but we need to look at making something available that allows those customers to shop around for goods.

As the hon. Member for Blackpool North and Cleveleys said, weekly instalments are appealing because they give customers the ability to spread cost. The stress put on weekly payments is what is most attractive to customers, which is probably why BrightHouse still advertises itself on its website as “Your Weekly Payment Store”—it does not advertise its prices but the ability to pay weekly. The payments seem affordable—£5 or £10—but amount to a sizeable expense over a few years, as the hon. Gentleman said. For people on low incomes, that will often mean going without elsewhere. It also means that many rent-to-own contracts are left unfulfilled, as customers do not make their payments and goods are returned. As the hon. Gentleman said, two thirds of a TV is no TV at all. The payments are lost, and there is nothing to show for them except, perhaps, a shadow on the wall.

The irony is that the people who can least afford it end up paying the most. That is probably not surprising, as they have little choice but to go somewhere such as BrightHouse and pay those prices. The rent-to-own firms have them over a barrel. That lack of choice for consumers is why I believe that this market in particular needs to be regulated. They are often from low-income households, and many are significantly reliant on benefit income. The typical customer is young, female and has children, and almost all live in rented accommodation. When I spoke to the chief executive of BrightHouse, he said that the firm bundles everything together because it knows its customers are female, and “females like things simple.” Simple, but a little expensive, I would say.

Failure to pay rent-to-own debt means that customers face losing goods. That puts pressure on money available for food and household bills. The average rent-to-own customer is substantially worse off than the average payday loan customer, yet they probably feel they have made a better choice, because of the publicity surrounding payday loans—rent-to-own, as I said, has operated under the wire.

The all-party group was concerned that the financial promotions downplay or ignore relevant costs and risks. Full ownership has to be the target with rent-to-own, surely—owning is in the name—yet the advertising focuses on the weekly payments and does not draw attention to the risks, namely the total cost of the credit and the fact that the goods can be taken back.

At the APPG inquiry, the Financial Conduct Authority said that it shared concerns about how firms advertise the deals and the prominence of the weekly repayment. The emphasis on the low weekly cost could be why so many customers get into debt: according to the FCA, 50% of customers get into difficulty with their rent-to-own commitments. That is a really high proportion of people who cannot afford to pay. I agree with the hon. Member for Blackpool North and Cleveleys that it raises the question of what affordability checks are being done.

The all-party group owes a debt of gratitude to Damon Gibbons of the Centre for Responsible Credit, and the Stockton-based community group Thrive. Their efforts led to the three large firms promising to improve their operations and an agreement was reached for a customer charter, although that was then reneged on—another reason why the APPG undertook our inquiry. That proves that perhaps voluntary agreements do not always work in this sector. The Centre for Responsible Credit and Thrive also gave evidence to our inquiry. Unfortunately, they said that little had changed.

We also took evidence from the three big firms in the sector: BrightHouse, PerfectHome and Buy As You View. They defended their business model on the basis that their customers had peace of mind because of the extensive service contracts. That may give some peace of mind, but what peace of mind can there really be when people cannot afford the goods, as the deals are so expensive, or when, as we heard from Thrive, two big lads turn up late at night to take away the fridge-freezer—“voluntarily”?

We also took evidence from Linda Woodall of the FCA, who said that the practices were ringing “alarm bells”—that was her actual phrase—at the regulator, which is concerned about the high level of repossessions and incomplete transactions as well as the warranties and insurance. The FCA has engaged with the issue: since the publication of the report I have had a meeting with Linda and can see that the FCA is taking the issue seriously. I thank it for that.

The FCA’s intervention has helped to elicit changes in the market, not least on price transparency. Firms are now breaking down the prices they charge for the goods, the loan and the warranty, and we welcome that. BrightHouse has also stopped requiring customers to take out its insurance product compulsorily, if they can prove they have their own household insurance. However, the extended warranty remains compulsory with both BrightHouse and PerfectHome.

[Paul Maynard]

Does the hon. Lady agree that that requires staff in BrightHouse to be aware of and apply the rules, and that, no matter what the centre of the firm might think, that does not necessarily always happen?

[Yvonne Fovargue]

I agree absolutely with the hon. Gentleman; we have seen rogue managers. For example, a manager at PerfectHome actually took a customer’s house keys before handing over the goods, so that they could go into the house. PerfectHome said that was a rogue manager, but it shows that the stores are perhaps not being operated as they should be.

The FCA should go further. I would like to see it ban expensive warranties and insurance as compulsory parts of a rent-to-own agreement. I would love to see some mystery shopping, as well, to look at the staff and staff incentives. The FCA may need to be given a wider statutory remit to do that, so perhaps giving it that remit would be a way forward. However, even within the current FCA rules, surely the current bundling offends against the idea of a credit agreement’s fairness? The FCA took action against compulsory single payment protection insurance premiums, so why does it not have the powers to prohibit credit agreements sold with compulsory service charges? I would like to see those people who were sold such products after April but who already had home insurance come forward, as I think they could reclaim.

The FCA has also said it is concerned about the high level of goods repossessed or surrendered before the agreement is completed. Twenty-two per cent. of customers have their goods repossessed or surrender them—more than one in 10 of all agreements. BrightHouse said that it never repossessed goods, but having looked at its practices and received some information, I have found that it has its own companies that collect debts, Caversham Finance and Sigma. One term in the contract with those firms is for repossessing goods. Caversham is a branch of BrightHouse, and Caversham Insurance is registered in Malta.

I wonder about the idea that customers would give up their goods voluntarily. That beggars belief. Let us say that someone with three children, who will need a washing machine daily, pays hundreds of pounds for one—the idea that they would then happily give it back, leaving themselves without after paying for it for two years, stretches credibility. The firms defend the high levels of surrenders by saying that customers often think of themselves as renting the goods, and happily give them up to move on to something else. Well, possibly, if it is something like an iPad, but not if it is a washing machine, a bed or the sofa. The customer expects to see something at the end. The whole point, as the hon. Member for Blackpool North and Cleveleys said, is that it is “rent to own”—they expect to own the goods at the end.

Thrive gave evidence of people who were extremely distressed when their goods were taken back—or “voluntarily” surrendered; their arms were twisted somewhat. Surely if people wanted to rent, they would go to a specialist rental outlet and pay the lower charge. I have done some comparisons with that sector. The high level of repossession shows a failure of the initial affordability checking, the forbearance procedures or both.

We should also look at whether the companies give people who get into difficulties breathing space. As has been said, over three years people at that income level are likely to get into difficulties. That is not acceptable; the FCA should look at producing sector-specific safeguards to protect people in financial difficulties against the loss of essential items. There are rules that set out that some bailiffs cannot repossess essential items, such as children’s beds, so surely there should be rules for this sector as well. We also think there should be health warnings on rent-to-own stores and websites to ensure that customers are aware of the cost of the agreement and the risks of repossession.

The FCA prefers to promote a supervision-led approach, which elicits a voluntary agreement from the firms to behave more reasonably. However, as I have said, we have tried the voluntary agreement route. The Centre for Responsible Credit and Thrive had a voluntary agreement arrangement, but it did not work. The FCA thinks rent-to-buy is a small sector compared with other, bigger sectors, but it is growing. BrightHouse’s model is to open a new store every fortnight, often in areas of the highest deprivation. Its stores are in prime locations in our towns and cities—particularly in areas of deprivation—and they prey on the poverty and desperation of many of our constituents, who are charged exorbitant prices for goods that they may never own.

We have to promote the alternatives to the rent-to-own model to allow people to obtain a more reasonable deal. We also have to ensure that people who are forced into the sector have some control over the worst aspects of the market. Those customers, as has been said, are particularly vulnerable. The FCA has a particular responsibility to give them a higher level of protection than other customers. We look to the Government and the FCA to protect customers who are not able to go elsewhere and therefore need our protection.

Benefit Sanctioning

Debate between Paul Maynard and Yvonne Fovargue

Tuesday 2nd December 2014 Westminster Hall

[Paul Maynard (Blackpool North and Cleveleys) (Con)]

It is a pleasure to serve under your chairmanship, Mr Howarth. I congratulate the hon. Member for Sheffield Central (Paul Blomfield) on securing this important debate. I was sorry to hear the aggressive tone with which the hon. Member for Edinburgh East (Sheila Gilmore) concluded, because this debate needs elevating above party politics.

I am proud to represent a constituency that has this country’s fourth most deprived ward, which is where our local jobcentre is sited. Just over the road in Blackpool South is the most deprived ward in the country. Our jobcentre deals with a vast range of highly vulnerable people with complex needs, including mental health problems, learning disabilities and addictions of one sort or another.

The walk from the jobcentre to my constituency office is 30 seconds, and I have dealt with numerous cases involving the word “sanctions” over the past four and a half years. I have seen the ebb and flow and the changing patterns in how the Department for Work and Pensions has sought to deal with the matter. It would be wrong of me not to make the effort to visit the local Jobcentre Plus to discuss why all this is occurring, what is going on and what is lying behind it. What truth lies behind the things that I read in the newspaper about targets and inappropriate sanctions? There is an element of black and white here.

The system has problems, many brought out by the Oakley review, that the Government are now dealing with by accepting the review’s 17 recommendations. However, I would welcome confirmation from the Minister that that acceptance applies not only to the sanctions imposed on those participating in the back-to-work schemes that fell within the remit of the Oakley review, but to the two thirds of sanctions that were not covered by Mr Oakley.

It is a fair point that there is a lack of clarity about what people understand they are being asked to do. The welfare state is a complex thing to navigate in the first place, which is why we have bodies such as Citizens Advice. A lot of it can be off-putting.

[Yvonne Fovargue]

Will the hon. Gentleman give way?

[Paul Maynard]

I will give way to the hon. Lady as this is her specialist topic.

[Yvonne Fovargue]

There have been a lot of references to the citizens advice bureaux, which issued the valuable report mentioned by my hon. Friend the Member for Sheffield Central (Paul Blomfield) and provide help to the most vulnerable. Many of those bureaux, however, are under threat as local authorities are hard-pressed and cutting their budgets. Does the hon. Gentleman agree that today’s debate demonstrates the value of the advice and the saving to the state?

[Paul Maynard]

I agree entirely. One of my caseworkers also works part-time at the local citizens advice bureau; her experience in the one role helps her in the other, and vice-versa.

What is not made sufficiently clear to all claimants of jobseeker’s allowance is that participation in any activity to get claimants closer to the workplace, whether computer or other skills training, does not invalidate the obligation to continue job-seeking activities. That is often the golden thread running through so many of the sanction cases that come across my desk. That central and essential point is somehow lost on people and, given that it is so central, I urge the DWP to make it much clearer.

What might be driving the ESA issue in particular, which the hon. Member for Edinburgh East mentioned, is the lack of freedom that Work programme providers have not to refer an infringement on for a further decision. That seems to be building into the system an accelerator of the number of referrals on potential sanctions. I urge the Minister to look at how we can build more flexibility into the system so that Work programme providers may choose not to refer if they deem that the claimant has a good reason.

I was struck by the reference of the hon. Member for Sheffield Central to the number of increasing incidents. We can all argue over the figures—some people cite 4.5 million—and I am sure that we will argue about them in the Select Committee, but the essential point to me is that any change in the welfare state or in any particular benefit inevitably creates confusion for those who have to administer the system and for those seeking to navigate it as claimants.

We have seen tremendous changes in the benefits system in recent years—new benefits coming in and new requirements being placed on claimants, none more so than the claimant commitment—and that has required a great degree of comprehension on the part of many of those applying for JSA. Many have none the less found the new document off-putting. Yes, it is certainly personalised, but it is still a matter of putting ticks in boxes as they apply to the individual, so the personalisation is a little limited. It still requires a variety of boxes to be ticked, rather than being built around the needs of an individual. That still creates problems.

I am also struck by the number of people making the journey over to my office from the jobcentre who say, “I have been sanctioned”, when on investigation no sanction is officially part of the story. To me, that was an anecdotal impression—that people said that they were being sanctioned, but were not being sanctioned—so I was intrigued to read in the Oakley report that DWP research had found that 28% of JSA claimants had said that they had been sanctioned in some way, shape or form. Once the case load was reviewed, it turned out that only 11% of claimants had been sanctioned.

I am not saying that those individuals were in any way seeking to misrepresent what had occurred. Once again, benefit claims can be complex, and the amount that one receives each week can change according to a wide range of factors, such as social fund repayments, late payment of bills or the Child Support Agency—the list is endless.

Savings Accounts and Health in Pregnancy Grant Bill

Debate between Paul Maynard and Yvonne Fovargue

Monday 22nd November 2010 Commons Chamber

[Paul Maynard]

I thank the hon. Lady for that intervention. One of the joys of the Bill is that I have learned so much from her about progressive universalism. She is right that the progressive element is being removed. However, it has struck me that it is as though I have been locked away on Moonbase Alpha for the past fortnight, because there seems to have been no recognition on the part of the Opposition that we are operating in a much more stringent financial climate. The hon. Member for Wirral South (Alison McGovern), who is no longer in her place, dismissively said at one point in Committee, “I recognise that there has been a debate about the deficit and all that sort of thing.” I found that regrettable.

We are operating in a situation in which we have to make financial savings. Rather than having a discussion about whether the child trust fund is the most appropriate use of public money, we have continually debated why we should do this, and this, and this, and then something else, and something else again. At no point did we discuss the crux of the issue: whether the child trust fund was the best use of public money to help those most in need in our society.

I welcome the fact that the Minister is having discussions with the right hon. Member for Wythenshawe and Sale East (Paul Goggins). I hope something comes of that, but I remain concerned that the Opposition’s determination to try to save child trust funds is based on an outdated notion that only those savings vehicles provided by the state can provide a solution. That is not the case.

[Yvonne Fovargue (Makerfield) (Lab)]

The child trust fund has a dual purpose—not only to give the young person a lump sum, but to nurture in them a savings habit for life. Some 74% of those eligible have taken up the responsibility of the child trust fund account. It is the most successful savings product on the market; ISAs and pensions fall well behind that figure. It is simple—much simpler than opening a deposit account—and it gives people a nudge to save.

Nearly a third of parents and grandparents have added to the fund, and the poorest 20% have added a higher proportion of their income to it. However, even for young people whose families do not contribute, the practical demonstration of saving in the account is invaluable. Organisations such as the Personal Finance Education Group, which works in schools, structure their lessons around it, certain in the knowledge that all pupils will have received a statement annually on their birthday, and that all pupils have such an account.

The very universality of the scheme provides a useful and practical foundation for learning and for influencing behaviour. In addition, it is especially useful for looked-after children and children with disabilities, who receive extra premiums. For looked-after children, it is a practical example of the state acting as parent and attempting to improve their prospects at 18—an ambition that all parents have for their children—by providing a lump sum at one of the most difficult periods of their lives, a time of transition that is difficult for any teenager, but especially for those leaving care.

For children with disabilities, the scheme provides an asset that allows them to take advantage of life opportunities or to invest in whatever they see as their priority. It is unfair to remove the scheme without a full impact assessment of groups who may be disproportionately affected, such as families with disabled children and people with disabilities, especially as the Demos report showed that the emergency Budget had a substantial financial impact on families with disabled children.

It has been suggested that a junior ISA may replace the child trust fund, but I cannot believe that it will provide an adequate replacement, even if a seamless transition in January 2011were possible, which has been disputed by a number of experts in the savings field. An ISA primarily benefits taxpayers and higher-rate taxpayers in particular, so what advantage does an ISA offer to a non-taxpaying family? Equally, the simplicity of the child trust fund product has been praised.

I have worked with people to whom ISAs and other financial products have little relevance, with people who need support to open a basic bank account and with people who have no notion of opening a deposit account. I urge Members, therefore, to retain the scheme in some form—even if only for looked-after children, children with disabilities and the poorest third of families—and not to scrap it completely. I urge Members to support the amendments.

--- Later in debate ---

[Paul Maynard]

Unfortunately, the hon. Gentleman’s point was not borne out by the evidence of Mark Lyonette of the Association of British Credit Unions Ltd. He was quite clear when he said of the saving gateway:

“None of the credit unions built their business plan around it, so I don’t think its withdrawal is a threat to the health of credit unions.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 52, Q149.]

It is important to ensure that we give credit unions what they want, and that is why we are seeing reforms to the Credit Unions Act 1979 enabling them to work with more than just individuals—they will now be able to work with interest groups, social enterprises and the like. We should not therefore allow the Opposition’s statement that credit unions have to be involved to obstruct the fact that this scheme will cost £300 million to continue. This might cause some Opposition Members to roll their eyes and shake their heads, as they did earlier in response to my hon. Friend the Member for Truro and Falmouth (Sarah Newton), but we are now living in a very different fiscal situation. The shadow Minister was quite right: the Government have changed, and we now have to take tougher financial decisions. We cannot justify spending £300 million on a saving gateway that will not be universally accessible across the country because there simply are not enough commercial providers willing to provide it. This is not a debate about a group hug, or about trying to encourage everyone to save more. We all know about those things.

I have been delighted to hear the hon. Member for Makerfield talk about Brighthouse, of which there is a branch in my constituency. I almost thought that she must have sneaked into my surgeries, because her tales about her voters’ problems with Brighthouse were the same as mine. However, I do not think that the saving gateway is the answer to the problems that many poor people face in getting access to cheap credit. It is not the answer to the problems we have been discussing. It fails the test that I raised on Second Reading—a test that I call my rhododendron test. The Opposition have a tendency to fixate on a single item of legislation that they believe will somehow solve all the problems in the world, but I am afraid that the saving gateway, however popular the pilots might have been, has not been popular enough with the providers that we need to ensure its success. That is why I support the Government’s decision to remove the scheme.

[Yvonne Fovargue]

I want to talk about the abolition of the saving gateway and the disappointment felt not only by the putative savers but by the credit unions, which thought that it would have a massive impact on the sector. The credit unions put a large amount of time and money into designing and introducing their product because they believed that the scheme had cross-party support. While matching the money is important in incentivising savings, it is not the only factor involved; in fact, it is not always the most important factor in influencing people to save. As we have heard, ease of access to a financial institution cannot be overstressed, and to use the existing credit unions at the heart of the community and to encourage the growth and development of the sector via this product was seen as vital. Indeed, Mark Lyonette said that encouraging people to save with credit unions was the issue. People are used to credit unions giving out loans, but the important thing is to provide them with products that encourage people to save.

The message that has been endorsed by the Government via the scheme is that even a small amount of savings matters, and that cannot be overstated. Most people do not deliberately set out to be in debt, but life events—such as the loss of a job, accidents, disability or even something as simple as the cooker breaking down—can cause debt. A small amount of money saved can act as a buffer, and people can then feel more in control and have more confidence. The value of that feeling cannot be overestimated.

It might be conventional wisdom that people should pay off all their debts before they start to save, but I take issue with that, as do people from the credit unions. As I said, events happen. The washing machine might break before someone has paid off the cooker, and if there is nothing to fall back on, the spiral of debt gets faster and deeper. That is when people turn to the legal loan sharks who charge more than 2,000%, or the actual loan sharks who prey on the vulnerable who have no resources. It is vital to provide a mechanism to remove people from the spiral of debt and make it easier to save. We know that people want to save for such events. Otherwise, why would so many people have saved with Farepak, a scheme that they believed was safe? If we could provide a trusted, easily accessible, local savings vehicle to encourage saving, we would prevent a considerable amount of human misery as well saving the health service a considerable sum for the treatment of depression and, in some cases, attempted suicide due to debt. A small amount of investment now could prevent a huge amount being spent later, and I urge the Government to reflect on that.