High-cost Credit

Richard Graham Excerpts

Thursday 5th September 2013 Commons Chamber

[Richard Graham (Gloucester) (Con)]

My hon. Friend is making a series of powerful points, as did the hon. Member for Makerfield (Yvonne Fovargue) and my hon. Friend the Member for Worcester (Mr Walker). He has not touched on the role of credit unions, but perhaps he is going to do so. My hon. Friend the Member for Worcester raised the issue of capacity. Is my hon. Friend aware that Lloyds bank has given considerable help to the Gloucestershire credit union and is thinking of providing even more help not only to our credit union, but to others around the country? There are opportunities for MPs to build capacity in their credit unions.

[Justin Tomlinson]

I thank my hon. Friend for that intervention, because it relates to my very next point and means that I now have longer than seven seconds to summarise that.

The Government should do more to promote a savings culture to prevent consumers from finding themselves in positions of stress in which they do not have the time to make an informed decision. Also, as many Members have said, we should strengthen credit unions and examine innovative products that come along involving community-based people who know the interests of their local community. There are many good examples that we should champion.

Finally, we must consider the mainstream institutions. They were caught sleeping, and the market has changed. It has gone online. People do not necessarily want to turn up at a bank in a suit to justify themselves. The market developed because there was a gap and the consumer wanted online services. We all instinctively trust the traditional institutions to do a better job, but they need to be in a position to do so.

--- Later in debate ---

[Guy Opperman (Hexham) (Con)]

The question that this debate is making patently clear is whether it is the responsibility of the state to look after those who cannot look after themselves. It has also been made patently clear in the brilliant opening speech of the hon. Member for Islwyn (Chris Evans) and in other contributions that there are many different practical and relatively immediate measures that could be introduced to address the problem of high-cost credit. They include restricting advertising budgets, implementing a greater degree of financial education, doing more work on shared data, addressing the question of interest rates and improving debt advice. I endorse the comments of the Public Accounts Committee and urge the Financial Conduct Authority to do more, as requested.

I believe that everyone agrees that the Archbishop of Canterbury was right when, in July, he championed the cause of credit unions and criticised the payday loan companies. He was right to say that we needed to “compete” the payday lenders out of the market. I welcome his comments, but I would argue that this debate has shown that although we all support credit unions, they are not necessarily the mechanism by which we will succeed in competing the payday lenders out of the market.

There is cross-party agreement on specific measures that can be taken to address the problem of high-cost credit, but I suggest that the mechanism by which people ought ultimately to borrow on a long-term basis is local community banks. They have all the flexibility, the clout and the borrowing power of a bank, as well as all the sympathetic community approach of a credit union, and the amalgamation of all those qualities will produce the best way forward.

[Richard Graham]

My hon. Friend will be aware of the resurrection of TSB as a brand in a market in which it previously had a good reputation for providing small loans and deposits to people in local communities. Does he see this as offering opportunities in that space?

[Guy Opperman]

Indeed I do.

I held a conference in Gateshead only a few months ago. It was attended by 170 delegates who were trying to set up local community organisations to address the lack of lending in their communities. They wanted to enable such lending by local, trusted providers, rather than by nameless, faceless, computer-led organisations based in London, Frankfurt or wherever. The smaller providers such as the TSB, the Hampshire bank and the Cambridge and Counties bank that are beginning to be set up are clearly the way forward.

No one should dispute that the expansion of credit unions is an extremely good thing. I welcome the changes in the way in which they are to be run; the Government should take credit for that. All Members of Parliament should become greatly involved in their credit union; I certainly support the Hexham credit union, which was set up with the help of the Churches in Northumberland. However, I question whether the credit unions alone will be able to address the problems of high-cost credit. In regard to interest rates, credit unions have clearly adopted a fantastically successful approach—their lending rates are so much better—but their deficiencies might mean that it is difficult for them to go forward. None the less, debates such as these on Wonga or on the private Member’s Bill introduced by the hon. Member for Sheffield Central (Paul Blomfield) have substantially raised public awareness of credit unions in the House and in our local communities.

I want briefly to talk about local community banks. For far too long, under successive Governments, we have been dominated by the big six or seven banks. I welcome the idea of a Church bank put forward by my hon. Friend the Member for Banbury (Sir Tony Baldry), but the kind of long-term community banking that he referred to has disappeared from our high streets and rural communities. That has had a detrimental effect on the ability to lend and to get credit.

The Government have rightly addressed that problem. It used to be incredibly difficult to set up a bank. It took in excess of £50 million and the process was highly regulated, even though the smaller banks in question were in no way comparable to a Barclays-style bank. The Financial Services Act 2012 changed the approach taken by the then Financial Services Authority and its successor organisations involved in regulation, and I strongly support those changes.

Reference has been made to the platforms required to set up a credit union or a community bank. Those requirements are now changing dramatically, to enable much greater interchangeability between pre-existing accounts held with the big seven banks and those held with credit unions or community banks. The mechanisms by which we can set up those organisations are improving, and many groups now wish to get involved. They include not only local communities but local authorities and individual businessmen with a philanthropic approach to their local community. Some universities, and even the Army, are considering getting involved. There are tremendous opportunities in our local areas to set up and expand these organisations.

Over the coming winter, we will all be faced with the issue of the energy costs that our constituents will face. In my community in the north-east, we have 24% fuel poverty, and a large swathe of the community is totally reliant on either oil or liquefied petroleum gas. That is an unregulated market, with all the problems that that entails. We have now formed more than 14 separate oil-buying clubs to try to address the cost of the oil. However, the requirement to buy 500 litres involves a very large financial outlay, often when oil is at its most expensive, and we are looking at ways to address that. The credit unions are certainly being encouraged to be the providers in those circumstances.

I hope that we will all try to expand our credit unions, using the plethora of good advice on regulatory changes, and to support our constituents who need assistance on this issue.