Rebecca Harris
Main Page: Rebecca Harris (Conservative - Castle Point)
Rebecca Harris (Castle Point) (Con)
I will try to be as efficient as possible with time, as I am well aware of the preciousness of time on Fridays. I congratulate the hon. Member for Sheffield Central (Paul Blomfield) on introducing the Bill, which contains sensible measures.
High-cost credit is a serious and growing problem, and the irresponsible actions of some of today’s payday lenders are beginning to resemble little more than traditional loan sharks knocking on the front door. However, the key difference that makes those firms so dangerous is that whereas not every vulnerable household in the country has a friendly neighbourhood loan shark knocking on their door, pretty much every household is likely to have a TV, radio or computer through which they are constantly bombarded with clever and manipulative advertising almost every time they switch on. In many ways, the cheap suit and the cheap comforting grin have been replaced by the cute advertising gimmicks that we heard about earlier. I support the Bill’s recommendations enormously.
We have heard a lot about the Citizens Advice payday loans survey, which gave frightening statistics about what is clearly still going wrong in the industry. I think 77% of respondents said they were having trouble paying their loan, and about 65% had extended their loan without being clear how much it would cost them. That is extremely worrying. Only 8% said that they were given any information about the availability of free debt advice, which tells us an awful lot about the problem.
I do not think any Member of Parliament has not had someone in their constituency who has suffered from payday companies getting them into deeper debt and roll-overs. I wish to give one example, a lady in my constituency who took out three payday loans to help to pay the bills. She was subsequently made redundant, and her relationship broke down due to domestic violence. She was therefore unable to repay her loans, and of course she began to get phone calls from the loan companies—up to five times a day from each company—and letters harassing her to pay. On many occasions, she was wrongly given the impression that they were priority creditors. They put her under a lot of pressure. She tried many times to renegotiate her loans, but she felt immensely threatened. She then went into counselling for domestic abuse, and the lenders’ harassment made her feel more anxious and depressed.
Terrified, my constituent began to repay the payday loans in favour of her mortgage, which obviously led to thousands of pounds of mortgage arrears and ultimately to her facing imminent eviction. She then got involved with the citizens advice bureau. I give enormous credit to citizens advice bureaux, and I am sure we are all extremely grateful for the fantastic work they do in our constituencies. They should be the first port of call for people in such difficulties, along with the Money Advice Service.
The fact that someone was pushed to the point of losing their home over payday loans tells us just how pernicious and dangerous they are. I cannot think of a case that makes their irresponsible practices more apparent or better shows why the Bill’s provisions are incredibly important.
We have talked about marketing issues, and I particularly support the desire to give an indicative cash cost in advertising. I know that the current regulations require companies to give a typical APR in their adverts, which is of course important, especially if there is a possibility of roll-over. However, on the whole it is not relevant if somebody is taking out what they intend to be a short-term, one-month loan. The APR does not give people much indication of their ability to pay the loan back. It is very hard to judge that, and to judge other companies and what they are offering. These loans are often what might be termed distress purchases to cover the cost of a sudden event such as a school trip or a broken boiler, and people are therefore looking for ease of access, but when they listen to these companies’ marketing they could be forgiven for thinking that ease of access is the only factor they should consider when taking out one of these loans.
I am sure Members will have heard many of the adverts—some may even have particularly irritating jingles rattling around in their heads now—and I have never heard an advert for one of these companies that says, “Our typical APR is just 5,000% per annum and a staggering 8% lower on average than that of our nearest competitors.” They simply do not market on those issues. If they were to give typical cash costs, that would make pricing more transparent for potential borrowers, and it could also mean lenders start to compete on that basis in their advertising, which might bring down the cost of these loans and therefore have a further benefit for potential customers.
I want to say a few words about the proposed restrictions to the continuous payment authority provision, which allows companies to take money from people’s bank accounts. Some payday loan companies have exploited that provision by simply taking money directly out of customers’ accounts on pay day even after those customers have done the right thing and have admitted to their payday lender that they are struggling and might need to reduce their payments. There are even some cases highlighted to us by citizens advice bureaux of customers who have rung up their lender, painstakingly negotiated a repayment plan with it over a number of months, only for it to take the outstanding amount it is owed straight away, leaving them with no money to pay their mortgage and utilities and other household bills. Payday loan companies behaving as if they are priority lenders in this way causes a huge amount of distress in my constituency and around the country, and I welcome the proposal that they should be obliged to give three days’ notice and make it very clear that customers can cancel their arrangement.
Alternatives such as the credit unions have been mentioned. Credit unions are doing fantastic work. In my constituency there is an incredibly popular one that meets at the St Nicholas church on Canvey island, and I would recommend it to any of my constituents. People in Essex can contact the Essex Savers net credit union based in Chelmsford.
People can also ask their employers for an advance on their wages, which may very well be met with a favourable response. When I was still running a small business, I would have been very receptive towards staff who wanted an advance. We must also constantly remind people that there is free Government debt advice. It is still the case that few people who use payday loan facilities and are therefore clearly in money difficulties are aware of the Money Advice Service—MA—debt advice or the fact that they can approach a citizens advice bureau. We should not just do the headline-grabbing thing of attacking the payday lenders, the names of which we all know; we must also constantly push forward the alternatives to people who are in difficulties, so they can get control of their finances without handing over large amounts of cash in interest to companies that perhaps do not have their best interests at heart.
Mr Thomas
With all due respect to the hon. Gentleman, the payday loan companies seem to have done rather well despite the problems many people have in paying them back. Let me use his intervention to suggest that these are issues we might usefully debate in Committee and an occasional rebel against those on his Front Bench might be tempted to recognise the benefit of further debate, in Committee, on irresponsible lending.
Rebecca Harris
As I rattled through my speech, the point I was trying to convey was how those lending companies often ensure that they put themselves in the position of being the priority lender. They ensure that they get their money back and it is the children who go hungry or the mortgage that goes unpaid otherwise. That is the problem.
Mr Thomas
The hon. Lady makes an extremely good point and I hope that even at this late stage her words might encourage the Minister to encourage the Whips to allow the Bill to progress to Committee so that we can talk these issues through in more detail.
The OFT’s report in March demonstrated the clear need for many of the measures proposed by my hon. Friend the Member for Sheffield Central. Indeed, I was struck in late June by the fact that the OFT, in the rationale behind its reference of the payday lending industry to the Competition Commission, asserted that payday lenders appear to derive up to 50% of their revenue from loans that are unaffordable. Borrowers essentially pay far more than expected through roll-overs, additional interest and charges. The OFT seems to be saying, albeit very politely, that £1 billion of the £2 billion the industry was worth in 2011-12 was made by exploiting the most vulnerable. Those are business practices of which the sheriff of Nottingham would be proud.
Important as the Competition Commission’s work will be, my hon. Friend’s Bill gives the House an opportunity to put in place a series of sensible reforms. He shrewdly allows time for consultation on the details and I welcome the opportunity the Bill gives for new powers for the FCA to restrict the amount of high-cost credit that can be advanced to an individual, to limit the level of charges, to deal with the roll-over lending issue that many Members have talked about as well as the way in which advertising takes place, and to require lenders to help fund debt advice.
It is important to acknowledge that there is clearly a market for short-term lending and that the alternatives to high-cost credit are either not available or not as flexible or responsive as many consumers would like. Clearly in our collective response as policy makers we need to avoid being so draconian that we completely kill off interest from responsible businesses as that would make people vulnerable to illegal moneylenders—loan sharks.
As well as the actions advocated by my hon. Friend the Member for Sheffield Central and the work of the OFT and Competition Commission to root out the worst behaving businesses, more action is needed to create viable alternatives to the payday lending business model. In days gone by, the social fund might have offered a credible alternative to a payday lender, but the cuts to the fund and its devolution to local authorities mean that access to social fund loans is increasingly a postcode lottery.
Credit unions are the other key alternative. The cost of a single loan with a credit union can be hundreds of pounds cheaper than a high-cost credit loan. Two examples are worth sharing. A £300 loan taken out over 52 weeks from Provident Financial at 272% APR costs £246 in interest. The same loan from a credit union for the same period at their maximum 26% APR costs just £38 in interest. That is dramatically cheaper. A £300 payday loan from Wonga at 4,214% APR over just one month costs £95.89 in interest. The same loan from a credit union costs just £6 in interest.
Sadly, in this country credit unions are still too limited in their reach and coverage. The Government, to be fair, have continued, like the last Labour Government, to invest in credit unions and to make sensible reforms, but a bolder set of measures is needed to reform the reach of credit unions. In the UK, just over 1 million people are members of credit unions, and I declare an interest as a member of the Rainbow Saver Anglia credit union and Harrow’s M for Money credit union.
Local authorities, social housing landlords, and other parts of the public sector, such as Transport for London and the Metropolitan police, should have an obligation to promote credit union membership to their staff. In the US, Canada and Australia, and even in Ireland, more than 25% of the population are credit union members. Indeed, I think the biggest credit union in the world is Navy Federal in the US. It is the credit union for the American armed forces, with more than 3 million US servicemen and women, from special forces soldiers through to navy cooks, as members. Why do our military not have the same offer for our soldiers and sailors?