Financial Services Bill

Stella Creasy Excerpts

Monday 10th December 2012 Commons Chamber

[Greg Clark]

The hon. Gentleman knows that the term, “payday lender” is relatively informal and loose. It is important for the FCA to have the powers it needs to protect consumers. Its focus should be on the consumer, rather than on a current definition of a practice pursued by a supplier. That is the way it is cast and it is the right power. From the discussions in the House of Lords last week—as he might imagine, I paid close attention to them—it was apparent that everyone who has taken a close interest in the past weeks, months and, in some cases years, was content that the powers vested in the FCA, which are clarified in the amendment, address all the concerns shared by Members on both sides of the House.

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

I encourage the Minister to broaden his comments to encompass all our concerns about high-cost credit companies. Having seen the wonderful damascene conversion to the need to tackle these companies, many of us want to ensure that we do not inadvertently miss out on not just those payday or short-term lenders, but doorstep lenders, logbook loans and hire purchase agreements. High-cost credit encapsulates all those issues, and I think it would be welcome to the regulator to know that the intention of Parliament is precisely to tackle the whole industry.

[Greg Clark]

I am grateful to the hon. Lady for her point, which makes the point I was making to the hon. Member for Harrow West (Mr Thomas). To use the term “payday lenders” exclusively is to miss a broader range of potential practices that may cause detriment to consumers, and that is why this approach is about the powers vested in the regulator.

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[Stella Creasy]

I shall speak to amendments 78, 137 and 148, which deal with the role of the Office of Fair Trading. Before I do, I want to place on record my gratitude to Members in the other place who, along with the hon. Member for Chatham and Aylesford (Tracey Crouch) have been so supportive of the sharkstoppers campaign. I mention Lord Mitchell, Lord Kennedy, the Right Reverend Welby—I think that is the appropriate term; apologies if it is not—Baroness Howe and Baroness Grey-Thompson. They have all been fantastic in championing a measure that I know has widespread support across the country.

I also put on record my gratitude to many organisations that have been helping make the case for action on high-cost credit, whether it be R3, the insolvency practitioners, the co-operative movement and co-operative party, Unite, Community and the thousands of concerned citizens who been involved in part of the campaign. I thank the hon. Member for Chatham and Aylesford for her kind words and for using the term “tirelessly” rather than “tiresome”, which is how some people might have interpreted the doggedness with which we have persisted in campaigning on this issue. In that sense, this amendment and the damascene conversion of the Government to the need to act on the cost of credit is very welcome. Throughout this campaign, we have all said that when the Government accepted that we were right all along, we would be grateful and would take it within the spirit of cross-party agreement that something needs to be done about these companies and about the impact of debt on our constituents.

With that in mind and in genuine appreciation of the fact that this moment has happened, I now want to press the Minister, as have many others, about the nature of the amendment and what will happen in the next year. Many of us are concerned that there is still a window of opportunity driven both by the delay in the implementation of these powers for the Financial Conduct Authority until April 2014 and by the continuing pressures that many in our constituencies will face, which might mean a bonzer Christmas for many of the legal loan sharks.

We started to campaign on this issue because we could see that toxic mix in Britain of a crisis in the cost of living, of families struggling, having lost jobs or facing wage freezes in Britain and, indeed, of the lax regulation in the UK of the cost of credit. We know that those pressures have got worse, not better, for British families over the last couple of years, so we know that one in three of those families in Britain have suffered a pay freeze over the last 12 months at the same time as they have seen the cost of basics rise and continue to rise. We know that many consumers have borrowed about £2,000 on top of their secured debts—their mortgages—to try to make ends meet in the last year, but only a quarter of them have managed to pay that money back.

The concern I bring to the House tonight is that when we look ahead to 2013, many of those pressures will not just increase, but explode over the course of the next year. The consequences for many, particularly those in the poorest communities, will be severe. We know that the pressures on the cost of living are not evenly distributed in British society. We know that the poorest 10% spend up to a quarter of their incomes on basics such as housing, fuel and energy, and we know that the prices of those commodities will become higher, not lower, in the coming year. Today we heard from E.ON—the last of the big six companies to announce it—about the increase in the cost of energy that consumers will face in the new year. The companies’ average increase of between 6% and 11% means that the average annual household energy bill will reach an all-time high of £1,300 next year.

I started to campaign on this issue because I could see the impact of debt on my community in Walthamstow, in north-east London. It gives me no pleasure to say that over the past 18 months many Members on both sides of the House, representing a range of communities, have approached me to discuss cost-of living issues, but I also know that London is a harbinger of the pressures that are to come. I know, because I have seen research-based predictions that London rents will increase by 26% over the next five years, that unless we do something about the cost of credit—unless we do something to help those who are struggling with the everyday cost of living—we shall face a society in which debt is just a way of life, with all the consequences that that will have for people.

However, this is not just about the cost of housing or, indeed, the cost of energy. It is also about the everyday cost of getting to work, which is having a great impact in my local community. I have talked to people in Walthamstow who have managed to secure apprenticeships but are forced to travel around London because there are so few apprenticeships in my area. A travelcard covering zones 1 to 3 costs £35 a week. Only people who are able to live at home can afford to take the opportunity to become an apprentice earning £100 a week, and we now learn that rail fares are to rise next year.

Those are pressures on the working poor in our community, but so are changes in the benefits system. Given that there is no spare supply of housing, it does not take a genius to recognise that the 1,000 families in my community who have been told that their housing benefit will be capped in April will have to borrow to make ends meet and keep a roof over their heads. The pressures that the legal loan sharks have decided to increase are the pressures that the amendment seeks to address.

It is clear that these companies are stubbornly resisting what are now widespread concerns about them and the profits they are making. Last year the industry was worth £1.7 billion in the UK; it is predicted that next year one company alone, Wonga, will be worth £1 billion, and it is just one of more than 200 companies that are now operating here. Moreover, the companies are clearly targeting young people, including students, and they have begun to change the terms of their loans. We became aware this week that Wonga is now offering what are supposed to be short-term loans on a 60-day basis. As the Office of Fair Trading has pointed out, the companies are abusing even the most basic consumer protections in the industry. That is why we need the amendment as a starting point, but it is also why we need to look at what else the OFT can do in the year ahead.

If we allow the pressures on consumers and their cost of living to continue and do nothing to curb the legal loan sharks now, we shall see another year in which millions of people are pushed into debt by them. We already know that a third of payday loan users take out loans that they know they cannot repay, and that 50% of people who have taken out loans have missed a payment. Given the additional pressure that those people will face next year, it will be a disaster for Britain if we do not act, and that means that we should think about what the OFT itself can do. I hope that the Minister will tell us tonight whether he will support measures enabling action to be taken now.

We know that the OFT will present new proposals in the new year, and that will present an opportunity for change that could set the tone for the new Financial Conduct Authority. I agree with my hon. Friend the Member for Nottingham East (Chris Leslie) and my hon. Friend the Member for Harrow West (Mr Thomas)—who is not in the Chamber now—that there should be regular meetings with the FCA to consider the industry now, but let us use the OFT to put down those markers.

First, as was pointed out by the hon. Member for Chatham and Aylesford (Tracey Crouch), we must pin down the question of irresponsibility in lending. What is an irresponsible rate at which to lend to people? The irresponsible lending guidance should be redrafted to make clear precisely what the cap should be and precisely what constitutes consumer detriment, in terms of both duration and the amount lent and including the total cost of a loan. Secondly, it should be made clear that it is irresponsible for lenders not to use a real-time credit register and ensure that every loan is recorded.

[Justin Tomlinson (North Swindon) (Con)]

The hon. Lady is delivering a categorical and passionate speech about a very important subject, and she has just made one of the most important points that can be made about that subject. Does she agree that the sharing of credit information in the UK car industry has, to an extent, transformed what was a very murky market, and that lessons can be learned from that?

[Stella Creasy]

I pay tribute to the work that the hon. Gentleman has done in raising issues about debt and credit, and about the way in which companies such as this operate. We know that many of them use a get-out clause, arguing that they could not possibly have known that someone had eight or nine loans at the same time. That is partly because there is no register specifying rates of interest and the number of loans that people are taking out. The OFT should make it clear that that constitutes irresponsible lending, and that loans should be made on a real-time basis. It is no good for supposedly short-term credit to be provided on a monthly basis. I also agree with all those who have expressed concern about continuous payment authorities. I hope that, in the new year, the OFT will make it clear that we must end both the fraud and the debt that they cause.

[Yvonne Fovargue]

Continuous payment authorities also militate against affordability checks. As was established by the OFT’s last review, once companies know that they can dip into someone’s bank ad infinitum, they simply do not bother to carry out the checks .

[Stella Creasy]

My hon. Friend is right. I pay tribute to the work that she has done in this regard, and also in regard to debt management plans.

Bad practice is widespread in this industry. The Financial Conduct Authority will have an opportunity to set the tone when it comes to the sort of consumer credit industry that we want in the future, but let us use the opportunity presented by the OFT to do something about the problems now, and to prevent 2013 from being boom time for the legal loan sharks.

The Minister must be aware that three quarters of consumers are looking towards Christmas with severe financial concerns, and that 10 million of us in Britain feel financially squeezed. Will he state explicitly whether he will support my proposals and take them to the OFT, so that we can be certain that 2013 will be a time for legal loan sharks rather than consumers to be worried? I urge him to read the Bristol research findings—which are already in the pocket of the Department for Business, Innovation and Skills—in order to understand how measures such as this, and total cost-capping, can work, so that we can finally say that Britain is a legal loan shark-free zone.

[Damian Hinds (East Hampshire) (Con)]

It is an honour to follow the hon. Member for Walthamstow (Stella Creasy), and to speak in favour of the spirit of Lords amendment 78.

The problems of high-cost sub-prime debt are widely acknowledged. Although they have come much more to the fore through opinion-formers of late because of payday lenders, they are not, of course, new, and by extension—this is somewhat at variance with what the hon. Lady said—it is not new that Government are not capping the cost of problem credit. It worries me slightly that we use the term “payday” as a catch-all shorthand for all these problems, and I hope that the Minister will reassure us that we are not just talking about payday lenders.

Dealing with problems of this kind requires an integrated approach involving financial capability and the provision of alternatives for people who need access to credit, but it also requires regulation. Disclosure is not enough in this market, especially as it often involves very vulnerable consumers and the ready, easy availability of credit. It could be said that supply sometimes creates its own demand. Some people tend to opt not for the solution that best suits their needs, but for the most recent that they have seen. In seeking to address these costs, however, we need to look at costs in the broadest sense. This is not just about interest rate charges.

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My preference is to have a more flexible type of cap that is, in fact, more like a curve, and which can operate effectively in all parts of the market without putting any of them entirely out of business. I discussed one version of that in a debate instigated by the hon. Member for Walthamstow (Stella Creasy) in February 2011. I called it a twin-cap approach, with a cap on interest rates—30%, perhaps—and also an arrangement fee cap, perhaps of 15%. Under such a regime, it would be possible to make money in very short-term loans—what we today call payday loans—but only in a responsible manner and at a decent level, and where operators were making longer term loans, the amounts they would be able to charge would fall.

[Stella Creasy]

It is wonderful to hear the hon. Gentleman talking about the positive aspects of capping. I suggest he look at total cost capping, because arrangement fees are not the only issue; there are also issues to do with late payment fees and the incentive they give lenders to push people to keep rolling loans over. Like the hon. Gentleman, I want this to be a future-proof—that is a dreadful term—proposal. We must also ensure lenders cannot get around it, however, which is why we need to cover all the costs involved.

[Damian Hinds]

The hon. Lady is entirely right, and I alluded to that point when I talked about behavioural charges. It is wrong to think we can legislate perfectly for all eventualities in advance, however. This market has an amazing ability to shapeshift and find its way around any regulation we might put in place, as has been seen in the United States.

I would like to hear an assurance from the Minister that under the new regime it will be possible to have a flexible capping regime that allows for all parts of the market to operate while also insisting that they do so in a responsible way. I also seek an assurance that we will not just address “payday” loans, which are a relatively new phenomenon in this country. Home credit is massive, and it has been with us since Victorian times, and has been a problem for quite a long time. There is also pawnbroking, which my hon. Friend the Member for Chatham and Aylesford (Tracey Crouch) mentioned. Logbook loans are a big market in the United States; they have not appeared in a major way here, but we can bet our bottom dollar that they would get a big boost if other parts of the market were capped. Rent-to-own is another area.

On the basis of the Minister’s conversations across Government, can he assure us that the Government will continue with an integrated approach that addresses not just regulation but boosting financial capability, starting with children’s capability with mathematics in school? Will they also continue to support operators that provide responsible credit, in particular credit unions? I pay tribute to the work the Government are doing in supporting that sector, and would like them to go further in modernising it and making credit union services more widely available, such as through the post office network.