Consumer Credit (Regulation and Advice)

Stella Creasy Excerpts

Wednesday 3rd November 2010 Commons Chamber

[Stella Creasy (Walthamstow) (Lab/Co-op)]

I beg to move,

That leave be given to bring in a Bill to impose certain limits on consumer credit interest rates and charges; to establish a levy on credit and debit card providers to fund the provision of debt advice services; to give powers to local authorities to restrict the provision of premises for licensed consumer credit agencies within a local area; to make provision regarding the availability of certain financial services products at branches of the Post Office; to make other measures relating to the regulation of, and availability of advice on, consumer credit; and for connected purposes.

This Bill is intended to address the needs of the poorest consumers in Britain. In presenting this Bill to the House, I hope to show how the Government can and must do more to support those who face financial hardship as a direct result of this Government’s Budget. Opposition Members have already set out their concerns about the spending review and the economic policies of this Government. We know that half a million people in the public sector will lose their jobs in the coming years. Experts predict that a further half a million or more jobs will be lost in the private sector as investment is wrung out of our economy.

Recent research from the university of Cambridge highlights the fact that personal debt is related to economic growth. As our economy stumbles under the weight of cuts, we know that more people will be forced to borrow to keep their families financially afloat. However, my Bill is not about public spending, but about a less widely publicised consequence of the Budget.

Loan sharks are now circling Britain’s poorest families, watching them struggle financially and sensing a business opportunity. The chief executive of one of them has stated that as a direct consequence of the spending review, he expects to see a growth in his target market. Indeed, following 20 October, his share price has already risen 5%, dependent as it is on unemployment and poverty. Such companies offer loans to those for whom credit cards and banks are out of reach—mainly women, the low-paid and those with a poor credit history. Research suggests that approximately 6 million people in Britain are in that position, some 1.5 million of whom are currently indebted to these pay-day lenders.

My Bill reflects my experience of working in Walthamstow with the Movement for Change and local campaigners. It also supports work being done nationally by the Better Banking coalition, Compass and Citizens UK as well as other Labour MPs. We have seen first hand how this is a market without competition. Just six companies control 90% of the loans made, which means that they can set the terms of trade. Such companies make money by locking people into cycles of debt, with interest rates starting at around 272%, and rising up to 2,500% or more. If people miss a payment by a day, they incur a charge, on which interest is added, and then there are the administration fees and fines, on which more interest is added. If they get into problems, they can always borrow more, thus starting the cycle of debt again.

Debt destroys not just bank balances, but the lives of those who live with the fear of the bailiff or the panic of repossession hanging over their families. A recent survey found that a third of British parents are arguing about debts with their partners, and suffering the stress of sleepless nights. I know that I do not need to tell hon. Members about these issues, because many of them, like me, will have had constituents asking them what to do about these problems.

The previous Government understood such problems well. They introduced the Consumer Credit Act 2006, took action on loan sharks and supported the development of credit unions in communities as an alternative source of loans and financial services. The new Government have announced a review of the provision of consumer credit, yet they commit only to action on store cards and credit cards, so they ignore millions of people in our country for whom access to those sources of credit is not available and for whom these companies are their only option.

Within a monopoly market that generates massive profits, it is vital that the Government make a clear pledge to intervene to protect the poorest consumers. Opposition Members believe that the ones who will end up shouldering the brunt of the comprehensive spending review need our help, and this Bill seeks to do just that.

First, the Bill proposes to regulate the total cost of borrowing. Mr Speaker, if I lend you £20 and say, “Pay me back next week and buy me a drink at the same time,” depending on where we went for our pint, in practice that could be an annual interest rate of 2,000 or 3,000%. Thus, if we focus only on interest rates, we miss a trick. Capping only those, and, to the same extent, all types of loan, may prevent small-scale lending and leave some consumers with no choice but to go back to illegal loan sharks. It would also do nothing to address the impact of compound interest on the costs or late-repayment fees.

This Bill would give the Government powers to intervene where the total cost of borrowing is excessive, and also to regulate how much interest different financial products—be they credit cards, short-term emergency loans or hire-purchase agreements—can carry. Such forms of regulation have already been successfully implemented in places such as America and Canada. That is why it is disappointing that the UK Government have made no firm commitment to consider such regulation in the current credit review.

Secondly, this Bill seeks to impose a levy on those who sell credit to pay for debt counselling and advice services. Just as the drinks industry came together to recognise its responsibilities through instigating Drinkaware, so it is right that these companies do the same for those who get into financial difficulties. What I am talking about is specialist debt-management counselling. Counsellors can give one-on-one sessions to families to help them get back on their feet by negotiating with creditors, helping families to navigate what support they are entitled to and identifying how best they can live within their means.

I welcome the Government’s continued support for the previous Administration’s work on a levy on banks for this matter, but I hope that they recognise the need both for financial advice services and advocacy and for the excellent and expert organisations, such as Consumer Credit Counselling Service, Citizens Advice and Christians Against Poverty.

Thirdly, the Bill aims to help local communities manage the presence of such organisations within their localities. My own local authority has been creative in using planning laws to manage the proliferation of fast-food outlets near our schools. This Bill would give local authorities clearer powers to regulate the numbers of credit-selling agencies operating within their locality, thus helping communities to choose how to manage the presence of such organisations in their neighbourhoods.

Finally, this Bill contains proposals to improve access to affordable credit, particularly through the credit unions, and I pay tribute to the excellent work of the Waltham Forest Community credit union that helps more than 4,000 people in my local area. Such proposals would build on the work done by the previous Administration to support the development of credit unions. The Bill requires the integration of the back-office technology of the Post Office network with the credit unions, so that many more people can access credit union services, including small loans, in any post office in the country at a much lower rate of interest than the legal loan sharks offer.

I have asked repeatedly for meetings with Ministers to discuss these proposals and seek their support. I know that they agree that tackling such problems is something that Governments should do—or at least many of their Front Bench did in 2005 when they signed an early-day motion calling for an interest rate ceiling. I hope now, in 2010, that I can help them to rediscover their consciences, and so I ask again for them to meet me and other campaigners to talk through the proposals in this Bill and how we can help the poorest consumers in Britain.

If the Government are intent on pushing their Budget on Britain, they will raise the number of families in our communities who are living with the daily misery of debt. They must therefore take responsibility for their actions. They must give the same consideration to the needs of those for whom the never-never is a fact of life as they do for those with an Amex card or a trust fund. I ask the House to support this Bill and help stop the legal loan sharks who now circle our local communities sensing blood.

Question put and agreed to.

Ordered,

That Stella Creasy, Tom Blenkinsop, Liz Kendall, Heidi Alexander, Mr Dennis Skinner, John McDonnell, Jon Cruddas, Yvonne Fovargue, Alex Cunningham, Sheila Gilmore, Natascha Engel and Fiona O’Donnell present the Bill.

Stella Creasy accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 4 February and to be printed (Bill 103).