High Cost Credit Bill

Debate between Penny Mordaunt and Jo Swinson

Friday 12th July 2013 Commons Chamber

[Jo Swinson]

I share the hon. Lady’s frustrations, having supported private Members’ Bills on Fridays in the past, such as the Climate Change and Sustainable Energy Bill proposed by the hon. Member for Edinburgh North and Leith (Mark Lazarowicz). Ultimately, it got through and was enacted, but getting there was a painful process.

I hope that I will be able to reassure the House on the issue of protecting vulnerable people and taking action on their behalf. Significant action is already being taken. Today’s debate is helpful in raising the issue’s profile, so I thank the hon. Member for Sheffield Central for promoting the Bill, but there is a sticking point with regard to the independence of the FCA and its role as a regulator with real teeth that is able to set its own rules.

[Penny Mordaunt]

Will the Minister give way on that point?

[Jo Swinson]

I want to make some progress, but I will mention the FCA later, so I will take more interventions shortly.

Across Government we share the concerns that have been voiced about payday lending. There is widespread poor practice within the industry and harm to vulnerable consumers. Since the Bristol report on high-cost credit and the Office of Fair Trading’s review of payday lending compliance were published in March, there have, unfortunately, been no signs of the problems going away, as backed up by data from Citizens Advice and StepChange.

The hon. Member for Sheffield Central said that his preference would not be to ban payday loans. It is important to be clear that there is a place for high-cost short-term lending and that emergency cash or managing a short-term cash-flow problem can be useful. However, it is not right for many consumers, many of whom get lured into taking out loans that they cannot afford to repay and that they should not be given in the first place. Too many people are not getting a fair deal, which is why action is needed and why it is indeed being taken.

The Government are making this a high priority and I am personally very keen to make progress in changing the industry. It is important to recognise, however, that the solutions are not easy or simple. This is a complex market. A wide range of factors drive consumer behaviour toward financial management and debt. I will set out the action the Government are taking to achieve better, faster and more responsive results than legislation.

It is also worth mentioning that we have tried very hard to work with the industry on these matters. Indeed, last November the industry produced a payday and short-term loans code of practice. I would argue that if everything in the code was being complied with, there would not be anything like the number of problems that are being experienced, such as three days’ notice from a continuous payment authority—that is mentioned in the hon. Gentleman’s Bill, but it is already in the code of practice—or affordability assessments or better information on constraints and roll-overs. The vast majority of the industry has already signed up to that and I think that the real issue is delivering it, which is why we recognise that further regulation is needed through the FCA.

We need to assess the progress that is being made with codes of practice so that the FCA has information on how the industry is complying with what it has signed up to. If the industry itself has signed up to something, I am sure the FCA will consider whether it is worth turning it into a firm rule when it publishes its rules. The Department has launched a survey to encourage customers who have used payday loans to undertake a quick online survey of their experiences, so that we can better assess the extent to which lenders are complying with their codes. I tweeted a link to that survey earlier today, if anyone listening is keen to take part in it.

--- Later in debate ---

[Jo Swinson]

I will take a few interventions. My hon. Friend the Member for Portsmouth North (Penny Mordaunt) asked first and then I will take an intervention from the hon. Member for Glasgow North (Ann McKechin), who has not yet intervened.

[Penny Mordaunt]

I thank the Minister for giving way. I want to respond to the accusation that some of my colleagues and the Minister herself are seeking to talk out the Bill. Although my hon. Friends the Members for Shipley (Philip Davies) and for Christchurch (Mr Chope) are a dynamic duo, I would point out, as someone who is sympathetic to the Bill, that they could not possibly do a better job today than the Labour Front Benchers.

[Jo Swinson]

I thank my hon. Friend for her description of my hon. Friends the Members for Shipley and for Christchurch as the Batman and Robin of Fridays in the House. We will obviously have to wait to hear what Members want to say.

Gift Cards

Debate between Penny Mordaunt and Jo Swinson

Tuesday 9th July 2013 Westminster Hall

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

As always, it is a pleasure to serve under your chairmanship, Mr Bone.

I thank my hon. Friend, the hon. Member for Portsmouth North (Penny Mordaunt), for securing this debate, because she raises an important issue. She has been a long-standing advocate for moving the holders of gift cards and vouchers up the order in which creditors are paid when there is an administration or an insolvency procedure. She has been that advocate for very sound reasons. We all understand the distress that is caused when a business—whether it is a major high street chain or a smaller local company—goes into administration. People are very disappointed if they are holding gift cards, which often have been actual gifts to them, but those cards end up being worthless. Clearly, that situation causes upset and I understand the need and the desire to address it.

Indeed, the Government are keen to try to ensure that those types of problems do not continue. A huge amount of work has been done with the hon. Member for Newport East (Jessica Morden) and others on the particular issue of Farepak, to try to get the best deal for those people who faced those appalling circumstances just before Christmas a few years ago. We have seen some positive moves by parts of industry that perhaps show the way for us to find some solutions to this issue; I will discuss them later. The specific solution of moving gift-card holders up the hierarchy is not necessarily the best solution; there may be other solutions and I hope to explore some of them in my remarks.

Let me address the particular issue of whether we should change the order in which creditors are paid. Both my right hon. Friend the Business Secretary and I have listened very carefully to a range of views on whether consumers with pre-payment cards and vouchers should be made preferential creditors. However, the problems of doing so—some of which my hon. Friend touched on in her speech—prove that this is not a solution that is especially desirable for vulnerable groups, such as employees or small and medium-sized enterprises that had supplied goods to the business in question. Much as I sympathise with all of the people in that situation, there are individuals for whom there is a real responsibility to try to get as much money back as possible. Just looking at one group in particular is perhaps not helpful; we need to look at all the individuals who are affected by an insolvency.

Unfortunately, as my hon. Friend said, after an insolvency, an administration or a company not doing as well as it would have wanted to, a limited amount of money is available. Ultimately, that business has not been successful, and that money must be spread out among the creditors. The question is how that pot of money should be divided up.

Among those seeking to be reimbursed from that limited pot of money are employees who may have worked but not been paid their full wages; business suppliers, many of which may be the SMEs that we all want to support in order to help the economy, particularly in our own constituencies, and we are well aware of the challenges that small businesses face; financial institutions; and Her Majesty’s Revenue and Customs. The difficulty is that, with that limited pot of money, if we were to change the preferential creditor status to improve the position of holders of gift cards, that would necessarily make the position of those other creditors worse. Therefore, it is a win-lose situation, not a win-win situation.

I am particularly concerned about two of those groups—employees and SMEs. Just like gift-card holders, business suppliers fall within the category of unsecured creditors. Therefore, they often receive only a fraction of what they are owed in these cases. That can have a particularly disproportionate impact on their finances, and we need to ensure that that is uppermost in our minds when we consider this issue. Making gift-card holders preferential creditors could, especially if large numbers of gift cards were issued, reduce the already scarce funds available to those supplier businesses, which are arguably in as much need—if not more so—of those funds to continue operating and continue employing people. We do not want to end up with a system where more businesses are suffering financial distress. So, the suggestion that we do something that could have a negative impact on the financial viability of small businesses must be treated with a great deal of caution.

With employees, there is a slightly different situation, because they are already in the pool of preferential creditors. However, if we add more people to that pool, of course the money that is available must go further. Employees could be in an even worse situation, in already difficult circumstances. Of course, we feel for gift-card holders when a high street chain goes bust, but we also feel for the employees, many of whom have huge uncertainty and do not know whether they are going to keep their job, whether the company will be bought out or whether some branches will remain open. If they do not even get paid for the work that they have already done—although some schemes enable them to reclaim some amount towards the payment they would have received—they end up out of pocket. That is a particular concern when considering such a change.

My hon. Friend also mentioned secured creditors, such as banks, which do not necessarily always elicit the most sympathy in this House or in the wider public. However, if lenders cannot rely with confidence on the security given by borrowers, they might become less inclined to lend in the first place or might factor that risk into increased costs of borrowing. As my hon. Friend said, there are already challenges in respect of bank lending to small businesses. Putting further hurdles in the way and burdens in place could limit access to working capital for a business that might already be under financial pressure and, ironically, could perhaps hasten the failure of such a business and even its insolvency. These issues and impacts mean that that solution is not necessarily the right way to address the matter. My hon. Friend will not necessarily be happy with that answer, but I hope that she understands why the Government take that view.

[Penny Mordaunt]

I think that I am on the same page as my hon. Friend the Minister. My argument is that we should not be treating these people as creditors at all. A number of solutions have been discussed this morning. For example, the hon. Member for Newport East mentioned awareness; we have e-money products; and I have suggested that such consumers should not be treated as creditors and that they could receive preferential treatment in exchanging the vouchers for goods, which is what they originally wanted to do. I am keen that the Minister does something. There is considerable evidence that companies are continuing to sell vouchers even though they know that they are going to go into administration and cannot honour them.