Consumer Credit Regulation

Richard Graham Excerpts

Tuesday 9th November 2010 Westminster Hall

[Pat Glass]

I understand what the hon. Gentleman is saying, but I do not think that it is relevant to the debate, or helpful.

The current situation of allowing very high interest rates to be charged to the lowest-income households leads to greater wealth inequality and greater child poverty, and it constrains efforts to regenerate deprived communities. We have heard about Provident Personal Credit, a legal loan company that operates widely in the north-east. It controls 60% of the home credit and legal doorstep lending there. It mainly offers small, short-term and unsecured cash loans. The typical annual percentage rate on a Provident loan is 272.2%, and 70% of its customers are women. The Government can address those issues and make the lives of those living in the poorest households easier.

[Richard Graham (Gloucester) (Con)]

Will the hon. Lady give way?

[Pat Glass]

I was about to say what the Government could do, but I shall give way.

[Richard Graham]

On the three recommendations made by the hon. Member for Walthamstow (Stella Creasy), does the hon. Lady agree that the second, which was about the role played by credit unions in the post office network, is the most exciting opportunity for combating loan sharks that we have seen in this country for a long time? The Minister with responsibility for the Post Office has already made it clear that he welcomes a future role for credit unions in the structure and distribution network of Post Office Ltd. In my constituency, the new Gloucestershire Credit Union, which is partly funded by the Department for Work and Pensions, represents an important step forward for us all in our different constituencies.

[Pat Glass]

I thank the hon. Gentleman for making that point, which I was going to come on to. What I will say now is that this is not either/or, and we can do both.

The Government could provide a cap now on the total lending rate that may be charged for providing credit, and on additional interest on late payments and default charges, and that could be targeted on companies that charge excessive interest—and then interest again on that charge—to customers who borrow from them. That would be a popular move. A recent YouGov poll, carried out in April 2010 and highlighted on the “End Legal Loan Sharking” campaign’s website, found that 89% of the people polled would support such a move.

The Government could also provide alternative sources of affordable credit. Many organisations have called for such action on high-street loan sharking, including Compass, Citizens UK and the “End Legal Loan Sharking” campaign. The Government need to provide local authorities with powers to enable them to restrict the provision of premises for licensed consumer credit agencies within a local area, and to give locals a say over what happens in their high street. When people are asked, they say that they do not want these pawnbrokers and “gold for cash” or high-interest-rate companies on their high streets.

I am disappointed by this morning’s announcement that the people’s bank will not be part of the post office network, as it could provide affordable short-term credit. Using the post office network to provide back-office functions that integrated the network’s services with credit unions would help the poorest people to access credit unions, current accounts and savings accounts through post office branches. However, I welcome the announcement about bringing together the synergy of post offices and credit unions.

The credit review and a cap on interest on store and credit cards are both welcome, but in themselves will not help the poorest people in my constituency and in many others. A credit review would seem to be the right way to go, but I ask the Minister to look again at the terms of reference and to include some of the very strong arguments that have been made from both sides of the Chamber today.

The Government need to do something to stop what is happening. It seems that the only growth on high streets in my constituency and in many others is in charity shops and pawnbrokers. The Government have made a commitment to reducing child poverty and this would be a very good place to start.

[Mr Christopher Chope in the Chair]

--- Later in debate ---

[Mr Thomas]

I commend the hon. Gentleman’s work on that, and I hope he will bring his experiences to his all-party group so he can share that good practice with others.

There were important contributions from the hon. Members for North West Leicestershire (Andrew Bridgen) and for Crawley (Henry Smith), from my hon. Friends the Members for East Lothian (Fiona O’Donnell), for Clwyd South (Susan Elan Jones), for Halton (Derek Twigg), for Leeds West (Rachel Reeves) and for Darlington (Mrs Chapman), and from my right hon. Friend the Member for Tottenham (Mr Lammy). My hon. Friend the Member for North West Durham (Pat Glass) made an important speech focusing our attention, rightly, on concerns about illegal loan sharking, which I want to come back to in a second. The hon. Members for Gloucester (Richard Graham), for Solihull (Lorely Burt) and for North Swindon also contributed.

My hon. Friend the Member for Walthamstow and the hon. Member for East Hampshire drew attention to the work of the previous Government in reforming the Consumer Credit Act 1974 and introducing the Consumer Credit Act 2006. It is time to look again at the definition of “unfairness” that sits as the heart of the 2006 Act to see whether it addresses the concerns of those championing reform of the 1974 Act. We need further action to tackle loan sharks, who continue to operate despite the activity of teams across the UK dealing with illegal moneylending. We also need to look at how to expand access to credit unions.

[Richard Graham]

Will the hon. Gentleman give way?

[Mr Thomas]

Forgive me but, given the time, I will not.

The hon. Member for East Hampshire raised the question of access to social fund loans, which are another important source of short-term lending for those in difficulty. The previous Government decided to increase the amount of social fund loans available, and it will be interesting to hear what steps the Minister’s Government plan to take on that. The previous Government also acted to increase pressure on businesses regarding how debts were collected and interest rates levied, due to considerable concern about how they were operating.

I shall end with questions to the Minister. Consumer Focus, which I understand is to be abolished, has called for reform of the pay-day lending market. It has specifically called for the number of loans taken out or rolled over to be limited to five per household, and called for the development of an industry code of practice. My hon. Friend the Member for Islwyn (Chris Evans) raised the activities of Wonga. He may be interested to know that it has developed a code of practice, and I will be interested to know what the Minister thinks about it, and whether he thinks there is merit in the industry doing more in that area.

I hope the Minister will explain the Government’s intentions for the consumer advocate, and whether it will have a role in regulating unfairness. Will he explain how the Consumer Protection and Markets Authority will take over responsibilities for consumer credit from the Office of Fair Trading? Lastly, will he explain what the future holds for the growth fund and the financial inclusion fund? Both have done much to fund the expansion of access to credit unions and debt advice and, as a result, have provided substantial help to many extremely vulnerable people.