Robin Walker
Main Page: Robin Walker (Conservative - Worcester)
Mr Robin Walker (Worcester) (Con)
It is a pleasure to follow the hon. Member for Harrow West (Mr Thomas), who made a number of important points.
This is the first time in my parliamentary career that I have been here on two consecutive Fridays. I am delighted to be strongly supporting two Bills that are very different but both very important to my constituents. It is a great pleasure to speak in this debate, which was ably opened by the hon. Member for Sheffield Central (Paul Blomfield), with whom I greatly enjoy serving on the Business, Innovation and Skills Committee. Although we speak from different sides of the House, I think that I can genuinely describe him as my hon. Friend. I know how much work he has put into this Bill, and it is a credit to him that he has attracted widespread support across the whole House on such an important issue.
My hon. Friend the Member for North Swindon (Justin Tomlinson) would have been here to speak in support of the Bill but has been detained by issues in his constituency. I pay tribute to the work that he has done with the all-party group on financial education for young people and the major battle that he has won in getting compulsory financial education into the new national curriculum. That is a big step forward that will help to address this issue. I congratulate my hon. Friend the Member for East Hampshire (Damian Hinds) on a brilliant speech that addressed many of the issues involved. I was also pleased to hear my Select Committee colleague, my hon. Friend the Member for Castle Point (Rebecca Harris), raise issues on behalf of her constituents.
I listened carefully to what the Minister said. I welcome many of the ways in which she has engaged with this topic, particularly her emphasis on the FCA providing strong regulation; indeed, I have spoken about that in previous debates. However, I was disappointed to hear her say that she would not be supporting the Bill, because I think that it should be debated and taken forward. It is interesting that she chose to argue that it would limit the independence of the FCA. In fact, the phrases in the Bill have been very carefully chosen to empower the FCA and to give it flexibility—indeed, in the view of my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), who is such a doughty champion of Parliament, to give it too much power and flexibility. We clearly have an ongoing debate on the Government Benches about whether the Bill would tie the hands of the FCA.
Mr Kevan Jones
Does the hon. Gentleman agree that if the Bill went into Committee and the Government had concerns about some parts, it could be amended to improve it?
Mr Walker
I agree with the hon. Gentleman.
This Bill deserves our support, first because it is a good and well-drafted Bill; secondly, because it addresses a hugely important issue that really matters in our constituencies; and thirdly, because of the polite, sensible and reasonable way in which the hon. Member for Sheffield Central has set about building a cross-party coalition of support for it. He has support from members on both sides of our Select Committee and, as far as I know, from all parties in this House, although the Liberal Democrats have not yet offered any.
This should not be a party political issue, but an issue on which we are all acting in the best interests of our constituents. As the hon. Gentleman clearly set out, there is a need for measures to protect the most vulnerable consumers from unaffordable loans. The many organisations on the front line, such as Citizens Advice, StepChange, Which? and Christians Against Poverty, have set out a powerful case for change to the way in which the sector works.
In rising to support this Bill, I pay tribute to the hugely important work of volunteers in providing debt advice, research into the problems of high-cost lending and the steps necessary to protect the most vulnerable from the risks of high-cost credit. Local organisations in Worcester that have contacted me about the issue include Worcester citizens advice bureau, Two Pennies Money Advice, St Paul’s hostel and the Tolladine mission, all of which, alongside numerous church and religious groups, provide invaluable support to my constituents and vital community services. I am very grateful for their support in drafting this speech and the information they have provided to me.
I have also received a number of letters of support for the Bill from a number of individual constituents and, indeed, from Unite the Union, an organisation with which I do not always find myself in agreement—at least in its national aspect—but whose local representatives I have always found to be reasonable, sensible people who want the best for their members and with whom I have been working closely lately on a couple of issues in the constituency.
Philip Davies
I, too, receive representations from Unite representatives. Does my hon. Friend agree that if this is such a big issue for the Unite union, perhaps it would be better employed withdrawing the £8 million it donates to the Labour party and lending it at low cost to some of its members who otherwise have to go to payday loan firms?
Mr Kevan Jones
Obviously, the hon. Member for Shipley (Philip Davies) does not understand how political funds work: lending money for that purpose would not be allowed by the law.
Mr Thomas
I am grateful to the hon. Gentleman for giving way. Interestingly, I think that Unite is one of the funders of a banking project in Salford that is designed to encourage alternatives to payday lending. Would he like to praise Unite and the other funders of that initiative, which is a little like a community bank?
Mr Walker
I would be very happy to do so. I have already praised Unite for some of the work it does in my constituency. I have no issues whatsoever in doing that.
Although I am sure many of the companies in the payday and high-cost loans industry will protest that they merely provide a service that their customers want, there are too many examples of people who have been trapped into loans they cannot afford to repay and of vulnerable people who have acted without sufficient advice or without the understanding that we would want them to have of the real costs and risks that they are taking on.
Research by Which? has shown that nearly 24% of people taking on so-called payday loans are using them to repay other forms of credit. StepChange tells me that constituents from Worcester who have contacted it owed as much as £1,717 on payday loans, which is much more than they are likely to receive in monthly income.
I have spoken in previous debates in support of the broad concept of capping the cost of lending, but I am aware of the controversies involved. I know that some colleagues warn—and, indeed, that many non-governmental organisations and charities argue—that there is a real risk in setting caps that more people could be driven into a black market and into the hands of illegal money lenders who would charge even more and offer less recourse.
Philip Davies
My hon. Friend has mentioned the number of people who have difficulties with payday loans. We certainly all sympathise with that, but surely in the interests of balance he should also refer to the number of people who are satisfied with their payday loan companies and the 90% or so who say that they would recommend their payday loan company to their friends.
Mr Walker
It is fair to acknowledge, as my hon. Friend suggests, that some people are satisfied, but I am concerned that briefings from these companies tell us that 75% of the people they are lending to are in employment. What about the 25% who are not? We should be worried about them, and about the ones who are trapped in unaffordable loans. The Bill sets out sensible measures to deal with that problem.
I am glad that the Bill sets out to remind the FCA of its responsibility to consider a cap. That is something that Parliament has previously urged it to do, in an unopposed motion. I would gently point out to the hon. Member for Foyle (Mark Durkan) that the Government have not opposed a cap, and that their MPs have voted for a motion that urged regulators to consider capping. That matter is still very much on the agenda.
The Bill proposes a number of other measures that could make a real difference, with or without a cap being imposed. Measures to improve the transparency of costs and ensure that advertising carries reasonable warnings seem to be a reasonable and proportionate starting point. Limiting roll-overs of short-term loans will be essential if the payday loan industry’s own argument that the relatively small cash cost of a short-term loan is to be believed, and if the argument that theoretical APR is irrelevant is to be accepted.
If roll-overs are allowed to happen too often, at the very high interest rates that some lenders charge, debts can spiral. It is not in the interest of borrowers or lenders for people to be trapped in a situation in which they cannot pay off their debts. I see no good reason for anyone to object to a limit on roll-overs. Indeed, the Consumer Finance Association tells us that it already carries such a provision in its terms of membership. However, not all payday lenders are members of that association and, furthermore, its terms of membership do not seem to be as rigorously enforced as they might be.
There are many other positive provisions in the Bill but the one that I want to focus on and which I think could make the biggest practical difference is the idea of a levy. The hon. Member for Sheffield Central has kindly acknowledged my long-term interest in this idea. I have long argued that it is unreasonable that banks and credit unions pay towards the provision of debt advice services but that payday lenders do not. This is a hangover from the regulatory regime that existed under the last Government, and, given the growth of the payday loan industry and other forms of high-cost credit, this matter will need addressing in any event.
However, I would be inclined to go further than simply putting payday lenders on the same level as lower-cost lenders. We have a responsibility to ensure that consumers are properly informed, but much of the evidence that we have heard today shows that they are not. We need to ensure that every consumer—particularly the most vulnerable—has access to free debt advice and an understanding of all their options when it comes to borrowing.
The coalition Government have rightly supported the growth of credit unions, as did their predecessor. Credit unions can often provide credit at a much more reasonable rate than payday lenders, as the hon. Member for Harrow West illustrated very well in his speech. However, they do not necessarily have the resources to advertise widely, and their coverage of the country is patchy. I want to see a credit union offering support to my constituents, but since the sad demise of the Black Pear union, we do not have a local organisation in Worcester with the capability to do so. We would welcome credit unions from elsewhere coming in, and I am glad that the Six Towns credit union has entered talks to do so, but it will take time for it to establish its presence and to scale up.
In previous debates, we have heard the argument that Governments do not set caps for lending costs, and that it would be wrong to interfere in the market by doing so. However, we have a good, recent example of the Government setting out a cap for lending, which has attracted broad support. The proposed 3% monthly APR limit for credit union lending has allowed credit unions to increase the interest that they can charge on loans, and thereby to reach a wider audience. That is still seen as a reasonable rate, as it is far lower than that charged by many payday lenders.
I would advocate using that cap on credit union lending as the base for a new levy. Organisations that lend above that rate should pay a levy proportionate to the amount of interest and costs that they charge, beyond the level charged by credit unions. That levy could then be used to fund free financial advice services. If the levy were set at a percentage of all interest above the 3% monthly rate, it could raise a substantial amount, given some of the rates being charged by payday lenders. Just 5% of Wonga’s profits would equate to £3 million that could be used to provide free financial advice.
This approach could create a virtuous circle whereby either the market share of the high-cost lenders would be reduced by the prevalence of better and more widely available free advice services, or the amount of free advice to support the most vulnerable consumers would grow as the industry did. It would also have the advantage of providing a financial disincentive for lenders to set their rates too high, and a competitive advantage to the credit unions. It could provide a valuable new source of income for a sector that has faced many challenges in recent years.
There is a precedent for such an approach in the voluntary support of major players in the gambling industry for GamCare, but in this case, it is important that any levy should be imposed by the regulator and backed by legislation, rather than being put forward by the industry on a voluntary basis. The industry has had plenty of time to consider making a contribution to free financial advice, and so far it has largely failed to do so. There is no evidence that the industry would act in concert to provide the level of support that the financial advice services needed, and I support the idea in the Bill that a levy should be managed by the regulator. I hope that the Government and the FCA will pay careful attention to the case for a levy, whatever the outcome of today’s debate and the progress of the Bill.
How the levy should be distributed could be a matter for debate. Some might argue, as the hon. Member for Harrow West did, that it should be used to fund credit union expansion, but I believe that a subsidy of any sort would distort the business model of credit unions and could risk making them less sustainable. I have discussed this point with representatives of the credit unions, including Six Towns. It would be better for the levy to provide them with a competitive advantage in being set above their lending cap, and to fund the financial advice that might direct more people to them as customers.
Some will argue that the levy should be directed towards financial education for young people and the most vulnerable. I would welcome some of it being available for that purpose, but I hope that its primary use would be to fund the valuable work of the voluntary sector in providing free financial advice and to ensure that the type of services that the hon. Member for Sheffield Central has signposted are sustained, supported and expanded so that they reach the people who need them most. I have no doubt that a substantial part of any such fund would be likely to go to Citizens Advice, and rightly so, but it must reach a wider range of voluntary organisations that provide free financial advice and help with debt, including the many valuable faith-based groups that engage in this area.
I believe that the best mechanism for allocating the proceeds of a levy would be a challenge fund, perhaps managed by the Big Lottery Fund, to allocate funding to debt advice services and financial education initiatives according to their reach in communities around the country, with the aim of encouraging support for the most vulnerable.
To make such a levy workable, it would be necessary to have a central register for payday loans. As the Bill sets out, such a register is desirable in any case. It would help lenders to establish whether their customers have outstanding loans and to avoid overloading people with a range of different debts. This is one area in which I disagree with my hon. Friend the Member for East Hampshire. I point out to him that such a system appears to be working well in Canada.
If I were to suggest one improvement to the Bill, it would be that it should provide a means for people whose only recourse is to high-cost credit to build up their credit rating so that they can return to the mainstream market. That is something that we might address another time.
I do not wish to detain the House longer because this is an important Bill and I want it to progress. There is strong cross-party support for the Bill. I hope that Government Members will recognise the value that it brings to an issue of grave concern and the potential that it has to raise substantial revenues for the voluntary sector in a way that can only benefit our constituents. I hope that Ministers will reflect on the many valuable propositions that it contains. I know that some of my hon. Friends are wary of private Members’ Bills and are wont to criticise legislation that they feel is informed by a “something must be done” approach. The case for this Bill, however, is not that something must be done, but that it is the right thing to do.
Jacob Rees-Mogg
The great thing about the Governor of the Bank of England’s eyebrow is that it is not a matter of statute. We have not put it in statute—indeed, I cannot think how that the statute would be phrased—that the Queen’s most Excellent Majesty, her Lords temporal and spiritual and her House of Commons have decided that the Governor of the Bank of England’s eyebrow should have legal force. It is not an accountability issue. I must confess that such legislation was rather better drafted under Henry VIII than nowadays. The language used in the section I read out has the greatest attractiveness and beauty, whereas ours is rather more mundane, but even in the 16th century—before the Bank of England was even founded—the Governor’s supercilious qualities could not have been brought into statute law.
Let me move on to one of the issues raised by my hon. Friend the Member for East Hampshire (Damian Hinds), who made an absolutely fabulous speech and covered the issues with the greatest intellectual rigour. He got into the question of supply creating its own demand and demand creating its own supply. There is an important quality about demand creating its own supply and that is that it tends to reduce prices. If we regulate, we find that we interrupt the natural creation of the supply that comes through. Let us look at it this way: if more payday lenders come to the market, they provide excess capital that is available. They want to lend it out and they have it on their books. They then have to advertise and build up the market. They produce the supply available, but others are doing the same. There is then an excess supply in the market and the demand will fill it up, but only if the price falls. If we regulate in such a way as to reduce the supply that is coming on board so that that excess of credit is not made available in the market, the price will increase as there will be fewer people participating in the market.
Mr Robin Walker
Was my hon. Friend as surprised as I was, given his point about the availability of supply potentially reducing costs, to hear the Minister celebrating from the Front Bench the fact that people are exiting the market? Would he not agree that we ought to be encouraging people to take part in the market in a more responsible manner rather than driving people out of it?
Jacob Rees-Mogg
I am in agreement with that. I think we have to be careful, therefore, about introducing new regulation, because new regulation has a tendency to drive people out of the market, or, worse still, favour the largest players, who find it easiest to deal with the regulation, and will then create an oligopoly or ultimately a monopoly, which of course produces the highest pricing possible. I would very much not like us to legislate in such a way that it is hard for new entrants to come in, that existing participants are able to consolidate their positions, and that one or two of them are able to push their prices up even higher. That would be deeply undesirable and would increase the amount of abuse.
The concentration of power in a very small number of banks has reduced the competitiveness of the banking system in this country. If we had a more competitive banking system, we might find that the banks were more interested in making lower-level loans, but because they only need to concentrate on the biggest business, which is the easiest—the least risky—the major banks are not in this area. They leave it to the payday loan companies, which are less well organised; they are organised in a more aggressive way, and a relatively unattractive way compared with the major banks. They are dealing with people who have a lesser ability to protect themselves against the payday lending companies, and they are not so much a part of the full regulated system in the way that the banks are. My hon. Friend is spot-on to say that we should not make it our aim to be able to boast about how many payday lenders we are forcing out of business, because we want an active and competitive sector rather than just having one or two players left in the end.
One aspect of the Bill that has been much praised—including by my hon. Friend, in a speech with which I otherwise agreed a great deal—is the power to enable high-cost credit providers to levy and provide a fund. That is exactly the sort of thing that Parliament should not allow. Moreover, it is in contravention of Magna Carta to allow such a power to be given to third parties. The power to levy fines and taxation belongs, in this country, under Magna Carta, only to courts, and that includes the High Court of Parliament.
Mr Walker
I was very interested when my hon. Friend mentioned some forms of regulation of the investment sector and the banks, and argued in favour of the extension of such regulation to the payday loans sector. Does he accept that at the moment, banks and credit unions are paying towards the cost of financial advice, but payday lenders are not? Does he not find that an extraordinary situation—admittedly, one that we inherited from the previous Government, and one that we should try to rectify?
Jacob Rees-Mogg
I completely agree with my hon. Friend that it is an anomaly, but not all anomalies are corrected by adding people in to the anomaly. It is much simpler to abolish the anomaly and say that the right to levy taxation is a fundamental right of Parliament. I quoted specifically from Magna Carta, which refers to a court, and we are the High Court of Parliament. It is important to remember that fines should only come through a proper judicial process or through the will of Parliament extracting fees. As soon as we delegate that to other bodies, over which there is no democratic control, we give up something that is fundamental to this House and what it is for. The consent to taxation is what this House has done since 1265. Perhaps the last Labour Government passed it over in a fit of absent-mindedness; they were not known for their love of the history of the constitution and their strictest adherence to it.
Lyn Brown
I agree with my hon. Friend’s analysis.
Community Links is a valued and well-established charity in my constituency that has worked tirelessly on behalf of disadvantaged communities for more than two decades. Its clients include people who have taken out payday loans as a means of supporting regular family expenditure. Community Links tells me that over the last year or so it has seen a 20% increase in payday loan problems, which its advisers attribute to the ease of access and application. It has given me two examples to share with the House of real everyday problems faced by my constituents.
The first client is a married woman with two school-aged children. The family own their property and are paying off the mortgage. She was in part-time employment, working as an administrative assistant, and her husband had been made redundant, so the family had to manage and struggle on her single wage. She started to take out payday loans in order to clear unexpected bills, but she then began to use the loans as a way of increasing family income.
Although she was highly experienced at juggling the loans, one by one the loan companies started to contact her regarding repayment. When she went to Community Links for advice, she had four payday loans with four different companies—short-term loans with high interest. She had also been using her credit card to pay for family expenditure and the total debt was about £7,000. She tried to negotiate the payments herself, but the companies simply were not interested. She felt threatened by numerous telephone calls, sometimes many on one day, and visits to her home address. Although she is a very competent individual, she became swamped by the loan companies’ demands and sought legal advice as a result. Community Links advisers drafted a financial statement, negotiated with creditors and arranged reasonable payment terms. It also arranged for her mortgage payments to be reduced in order to bring down her expenditure to match her income. The Bill’s proposals on affordability and access should help prevent the build-up of such calamitous debts. If she had not gone to Community Links, or if it had not had the staff to help her, I shudder to think what would have happened to her and her family. It would have meant default on the mortgage and homelessness. She would then have had no choice but to apply for housing benefit and would have had found herself, as is often the case in London, in substandard, expensive private rented accommodation. All this would have been at a cost to the taxpayer and would have been avoidable with the proper regulation of loan companies.
I am afraid that this case also highlights the crucial role of debt advice in starting to resolve people’s problems. Community Links tells me that it has lost all legal aid funding for welfare benefits and debt advice as a result of Government cuts, amounting to more than 700 cases a year, each of which would be more likely to lead to ongoing costs for the taxpayer, rather than individual, one-off payments and interventions.
Community Links also tells me that the loss of funding for advice services means that struggling families are finding it much harder to access support when they need it and are getting deeper into crisis. The solutions—eviction and homelessness—cost the taxpayer money and we must not forget that.
I welcome the Bill’s provision that lenders should signpost customers to free, impartial advice when they are turned down or miss a payment. I also welcome the potential levy on lenders, specifically to pay for additional debt advice through the Money Advice Service. I hope that the Financial Conduct Authority takes note of that when it assumes responsibility for the sector in April 2014.
Mr Robin Walker
I agree with the hon. Lady about the importance of free financial advice—she gave a good example of that from her constituency—but would she not agree that, potentially, this should be extended beyond the Money Advice Service to other voluntary bodies that provide free financial advice and do so much for our constituents?
Lyn Brown
I absolutely agree. Community Links is not a money advice service, per se; it is a general advice service, and a good one at that.
The second case that Community Links told me about also illustrates why the Bill is needed. The case is that of a single woman with three dependent school-age children—nine, 12 and 16—living in council accommodation. She lives with slight learning difficulties and experiences problems with literacy. She currently has a part-time job, receiving a salary of £557 a month, with working tax credits of £240, plus child tax credit and child benefit. When she visited Community Links, she reported council rent arrears and difficulty meeting regular utility bills, and was finding it difficult to live on her income. She also began to use easily available payday loans to supplement her income.
At the time of her initial visit, the total value of the loans was £977, which was renewed—rolled over—each month, to supplement her income. She also had unsecured credit of £14,000. Payday loans were used for regular living expenses; for example, child minding, school meals, household bills and travel to work. The client did not fully understand the long-term implications of interest payments at all, or of using payday loans for family expenditure. There was simply no understanding. Community Links is currently assisting this woman by applying for a debt relief order. The proposal in the Bill to determine and regularly review the number of roll-overs and a limit on the number of loans per year would help people such as this woman.
It is certainly no help to allow—indeed, to encourage, through attractive advertising and inadequate regulation—almost unrestricted access to expensive credit, when advice and support to manage debt is so much more appropriate. An existing alternative has already been spoken about in this Chamber: the credit union movement. I have direct experience, from my time working in Waltham Forest, of establishing a credit union. I am delighted that Justin Welby, the Archbishop of Canterbury, has called on church parishioners to lend a hand to credit unions, so that they can provide an alternative to payday loans. The Waltham Forest community credit union was ahead of its time, because it was set up by a confederation of churches in the borough. With the skills, financial experience and premises and halls at the heart of communities that it offers, the Church is exceptionally well placed to help the credit union sector to grow and thrive.
Credit unions often have difficulty in establishing themselves because they do not have the basic seed funding that they need to grow to the level at which the membership of the union makes it sustainable. It would be good if my hon. Friend the Member for Sheffield Central could find a way in which the Bill could be amended to nurture credit unions so that they become an alternative to the payday loans system. There would be a just logic in imposing a levy on payday lenders to support the development of credit unions, because the problem would be funding the solution.
I commend the principles and provisions of the Bill. It would make the market fairer by regulating the advertising of payday loan providers, requiring clear information on the cost of loans and introducing a range of measures to protect borrowers in difficulty. In particular, I commend the Bill because it would give the FCA the ability to prohibit
“specific features of high-cost credit”,
including the amount of credit that can be advanced, the level of default charges, charges related to the use of a continuous payment authority, roll-over and repeat lending, and obligations on loan guarantees.
Those are the issues that are most often brought to me by the advice services in my area and I am sure that they are the types of problems that hon. Members on both sides of the House encounter at their surgeries. Those issues are at the heart of the irresponsible lending and repeated rolling over of unpaid loans that cause so much harm and misery to borrowers and families. The provisions of the Bill are greatly needed. They would help people in our communities who are vulnerable to exploitation, and who need and deserve our support.