Financial Services Bill

Stella Creasy Excerpts

Monday 26th April 2021 Commons Chamber

On that basis, I am happy not to support the amendment and not to vote with the Government. This is the closest I have been, in six years doing this job, to voting against the Government. Nevertheless, I am reassured by the conversations I have had with the Minister and am willing to work with him to try to make sure that we can find solutions, as rapidly as possible, to solve the plight of many tens of thousands or even hundreds of thousands of people.

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

I associate myself with the powerful speech by my hon. Friend the Member for Feltham and Heston (Seema Malhotra). I understand where the hon. Member for Thirsk and Malton (Kevin Hollinrake) was coming from, but I really believe that we could make some progress on this issue this evening. That would be of great benefit to many people affected by the issue, so I will certainly support the relevant amendments.

We know how important this legislation is. I pay tribute to the Minister, who has been listening to concerns throughout the Bill’s passage. I wish to comment on two particular issues in respect of which I would like him to tell us further information; I hope he might be able to. We know that this legislation matters desperately because between a fifth and a quarter of adults have experienced a reduction in income in the past year. That is mainly because of furloughing but is also true among the self-employed. It is crucial to get financial services right as we come out of the pandemic to help to make sure that people are not stuck in interminable circles of debt.

We knew that one in five people were already struggling to pay for housing, food and energy and were unable to meet their credit commitments. That proportion has now risen to two thirds among people who were already suffering from financial problems before the lockdown. There has never been a more important time to get right how we regulate our financial services. StepChange points out that 26% of those affected by coronavirus have borrowed money to make ends meet, usually using their credit cards or an overdraft facility. At least £3.3 billion of new debt has been taken on since the start of the crisis. The question for us is whether the Bill is going to do enough to make sure that that credit is offered at a fair and affordable price for people.

Given that 6 million Britons have already fallen behind on a household bill, this is a question for the state as well as for our economy. Mothers, lone parents, those from black and ethnic minority backgrounds, the young and the disabled are most at risk of debt. In April, a quarter of all mothers from minority community backgrounds reported that they were struggling to feed their children, and 32% of young women reported finding it hard to pay for essentials. That is not just a financial problem; it is a mental health issue. There is a mental health crisis coming to our country, with one in every 12 people who are over-indebted experiencing mental health problems.

I know that the Minister shares the concerns I am outlining. That is why I have been a terrier when it comes to the “buy now, pay later” industry—because of my concern about the way in which it engages in lending to our communities. The Minister knows the speed at which the industry has grown during the pandemic. The FCA found that 11% of consumers in this country—roughly 5 million people—have used a BNPL product since the start of the covid outbreak, and many of them say that they use “buy now, pay later” credit because they cannot manage their financial distress, which is directly related to the crisis, without it.

BNPL companies have exploded. Within a year, Clearpay now has 1 million customers in the UK, lending to them on average eight times a year. Klarna, perhaps the most well known, reports that its worldwide revenue for 2020 grew by 40%, to $1 billion. The founder of Laybuy expressed concern and surprise that fraud in the UK market was huge in comparison to that in New Zealand and Australia. That just shows the problems of the industry coming and exploding at such a rate in our communities without regulation.

Compare the Market tells us that “buy now, pay later” schemes are being used 35% more than they were in the pandemic, with most customers saying that it is because they cannot afford to make purchases outright. We are a nation with a massive debt bubble underneath our economy and we need to ensure that, when these companies operate, they do not exacerbate it.

I welcome the Woolard review, which was clear that the “buy now, pay later” industry needs to be regulated because people were in financial distress and difficulty because of these products, that the products were not good value for money, and that many of the things their lobbyists had told MPs were simply not true. Indeed, the review also found that consumers may not be applying

“the same level of scrutiny to their decision-making as they would for other credit”

companies,

“including consideration of the potential consequences of failing to repay”,

because they were not getting the right information. The Minister will know—we tried to tell him at the start of the Financial Services Bill—of the case that we needed to take to the Advertising Standards Authority about the way in which Klarna was advertising its products.