Penny Mordaunt
Main Page: Penny Mordaunt (Conservative - Portsmouth North)
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.
Damian Hinds
My hon. Friend raises an important and telling point. It is, as he says, a problem affecting students, but I am afraid that it exists for many older folks as well. It highlights the fact that a cash number might be a more appropriate headline figure on which to explain the costs.
My second rule is that if the market is providing something that people want and it seems to fulfil a need, it cannot be got rid of unless something better is provided. Credit is a fact of modern life. During the year, people have ups and downs in their expenditures patterns—around Christmas, birthdays and back to school, as well as when unexpected things happen such as a car or a relationship breaking down. Credit is one of the means that everybody uses—or almost everybody, whatever their income level—to help smooth out those ups and downs. It can be entirely rational—the point raised by my hon. Friend the Member for Shipley (Philip Davies)—even to take out a payday loan at a 2,000% APR if in so doing someone avoids unauthorised overdraft charges by the bank, which might cost even more. When the market provides something that has a use, it will not be got rid of until something better is provided.
My third point is that although, as I said, the market will provide and supply will follow demand, it is also true that demand will follow supply—on that at least, Galbraith was right. Payday lending in the UK in recent years has not grown because it has suddenly become more difficult to get from one pay day to the next. People have always struggled to get from one to the next and to pay unauthorised overdraft charges to tide them over for a short period. The difference is the availability of payday lending—partly, Members may note, displaced from the United States, from where a number of operators have come as the regulatory environment in the US has become more difficult. That suggests that there is some efficacy in regulatory restrictions.
All of that tells us that individual simple and grand solutions will probably not create the whole answer. We need an integrated approach, and, as the hon. Member for North Durham (Mr Jones) mentioned, we need financial education. That is one of three parts that have to constitute an integrated approach. The others are sensible regulation and disclosure and ensuring that there are alternatives to high-cost credit and to operators that we would rather people did not have to use.
To be fair to the Government, there is quite a strong story to tell on each of those points about action that has been taken and is being taken. Financial education is going to be in the national curriculum, and there will be a strengthening of mathematics in schools. On sensible regulation and disclosure, we have the new regime with the Financial Conduct Authority, which has the potential to be tougher and more effective than regimes hitherto. Even at the end of the old regime, we are now seeing a sharper and tougher approach from the Office of Fair Trading.
Finally, on alternatives, I am proud of the Government’s support for the credit union sector. We could say the same of the previous Government’s support, although this Government have gone further and are seeking to help the credit unions—those in Great Britain, I should say for the benefit of the hon. Member for Foyle (Mark Durkan)—be self-sustaining and a healthy sector, just as credit unions in Northern Ireland are, and at economic scale. There is also possibly more that could be done in exhorting the mainstream banks to live up to what they might do to ensure further financial inclusion and affordable credit.
Are the Government doing enough? I think it remains to be seen. To some extent they may be, and the new FCA regime could produce quite a dramatic change over time, with credit unions becoming bigger, offering an improved product range and so on. That will really make a difference, and with the lifting of the cap from 2% to 3% per calendar month, we will start to get into a zone in which short-term loans can take on parts of the payday lending market.
Big issues remain, however, and the hon. Member for Sheffield Central mentioned some of them. At the top of the list, of course, is the massive and visible growth in payday lending. One thing that has really made a difference to the public policy debate is that now that high-cost credit is on the side of buses a lot more people are paying attention to it than when it was only on daytime telly or on the back of tabloid newspapers. There are also issues to do with credit brokers and the Amigo model, which is a new model of credit whereby people get their mates to underwrite their loan, and then it turns out, lo and behold, to the surprise of that mate, that he or she gets stiffed for having to pay the loan later. We must also consider the behaviour of certain debt management companies, marketing practices and so on.
Through it all, we should not forget old-school credit. I have mentioned all the flashy new things that are clearly visible on the radar of public policy makers and commentators, but home credit is an enormous sector that is largely invisible to most of us, because most of the time it is a door-to-door activity on streets and estates, using an agency network and without advertising. The leading operator of home credit claims to have one in 20 UK households as regular weekly customers. It is an enormous business.
I turn to specific aspects of the Bill. I will comment on them in the sequence of the customer journey, starting with advertising. This is tricky for me to say, as I believe in free markets—I am a Conservative MP and was a marketer before I came to the House—but at some point we have to face up to the fact that not only sharp practice, such as dodgy or unrealistic advertising, but the volume of advertising in the credit market makes a difference. The sheer ubiquity of messages about the ease of access to credit and the problems it will solve has an impact.
I am not about to advocate some sort of volume restriction on advertising, but we must have that point in the back of our mind. I understand that the Government have commissioned some research on the effect of payday loan advertising on consumers, and that we will hear back on it in the autumn, to which I look forward. Without trying to restrict the total number of ads for credit, I think there are some things that everybody can agree are blatantly bad and should be stopped. One example, to which I think the hon. Gentleman alluded, was the £1,000 night out text that First Payday Loans sent to people. It purported to be from a friend and said, “I’m still out on the town and I just got £850 or £1,000, and you can too.” That is clearly bad practice in advertising.
I saw an advert on Sky News the other day for an instalment loan, not a payday loan. It said, “Quote this voucher code for 20% off”, and then in small letters on the screen, it said “20% off your first repayment.” There are 12 repayments, with 20% off the first one, so it is hardly a bargain. We need better enforcement on advertising, and the new regime can bring that.
More generally, as the OFT has said, there is too much emphasis on the speed and ease of getting credit. The terms of competition are, “We will do it faster than the other lot.” It is about fewer checks, less waiting time and so on.
Penny Mordaunt
Does the hon. Gentleman agree that for an enormous number of people who are going for such loans, it is extremely attractive not to have any face-to-face time? Often, they are intimidated by having conversations with a bank manager and so forth, and some of them are deeply embarrassed about the situation in which they find themselves. Being able to go online and spend 15 minutes getting a loan without any advice or any real time to think about it is an extremely attractive option.
Damian Hinds
My hon. Friend is entirely correct. It is not necessarily even about face-to-face time; even not having to provide a physical signature makes a difference. We cannot logically explain why that is so—it just is. Each hurdle makes people reflect further on what they are doing, and as things become quicker online, that creates an added danger.
Some of the advertising and marketing styles of payday loan companies in particular, such as using cutesy cartoon characters, are to my mind not really appropriate to people possibly getting themselves into financial trouble.