Consumer Rights Bill

Debate between Stella Creasy and Helen Goodman

Monday 16th June 2014 Commons Chamber

[Stella Creasy]

My hon. Friend has raised an important point. I admit that I have been deeply concerned about campaigning on this issue and for our proposals, because I think that it is a bit like telling turkeys how to avoid Christmas. The more we make it clear to estate agents that the Government are currently letting them get away with this behaviour, the more they will engage in it. Indeed, I am sad to report that since February, when we began expressing concern about double charging, an increasing number of estate agent chains throughout the country have been using “sale by tender” processes involving the introductory fee. I must emphasise that we are objecting not to sale by tender per se, but to the fact that people are being charged a fee to be introduced to a property. That is what is causing such concern.

When I first observed that Douglas Allen in Walthamstow was engaging in the practice, I thought that perhaps we had just one rogue estate agent. I hoped that when Phil and Kirstie came to Walthamstow recently to film “Location, Location, Location”, they would take a dim view of it, but I am sorry to say that we are now hearing of cases at Your Move, Ellis and Co. and Reeds Rains. A number of estate agents are picking up the idea that applying such fees is acceptable behaviour, and the damage that that is doing to the interests of both sellers and buyers is growing.

There is a question for us here. We can see that the practice is distorting the housing market. If we want a free and fair market, these conflicts of interests must be resolved, so that sellers can be confident that buyers are always acting in their interests, and buyers can be confident that when they participate in a bid such as this, it is taken seriously. Should we act, or should we wait until the damage to consumers’ interests becomes worse? We tabled amendment 1 in order to make charging two parties a fee to the same transaction a term in a contract that can be challenged on the basis that it is unfair. We believe—as does the property ombudsman—that such charges are indeed unfair, and should be open to challenge.

This comes at a time when there is widespread concern about the estate agent industry, full stop. I accept that it may be another “British value” to complain about estate agents, just as people complain about traffic wardens and, indeed, politicians. We all recognise that we are not immune to that moment in the pub on a Friday night. However, we know that there are serious concerns because of the nature of the housing market. I have been contacted by people who have been told by estate agents that they cannot have access to the lists of housing for sale unless they commit themselves to taking out a mortgage through them, or using their financial advisers or lawyers. That is another clear conflict of interests for the seller.

We need a tough regulatory regime to ensure that we have a fair housing market in England and Wales. We continue to be concerned about the fact that the Government have delegated the monitoring of all estate agents in England and Wales to Powys county council’s trading standards body. A Welsh rural council has been charged with the task of examining the behaviour of nearly half a million estate agents. It should be taking account of the blatant and rampant exploitation of the demand for housing that these charges represent, but when people affected by them have contacted Powys, they have been met with indifference about whether it should be dealing with the issue. The council took over only in April—this may be a new moment—but it is clear that we need to take stronger action before the situation gets out of control.

[Helen Goodman (Bishop Auckland) (Lab)]

My hon. Friend is highlighting the way in which the Government have contracted out different aspects of trading standards to various local authorities. Has she looked into the number of houses that have been for sale in Powys, and considered how experience in Powys can possibly inform an intelligent approach to the London housing market, which is totally different?

[Stella Creasy]

I think that there is genuine concern about whether Powys county council is equipped for the task. This is not necessarily just about its trading standards: after all, this is a council that has gone through three cabinets in as many months, and has had problems with the setting of its budget. Some have suggested that it needs to put its own house in order before putting our house sales in order. Certainly, double charging is a great example of the sort of problem that we would expect an effective regulator to be able to deal with. There is a clear conflict of interests. The fees being charged are clearly causing detriment to consumers.

I welcome the fact that the Minister has met the property ombudsman since we raised this issue with her, but I note that as yet there is no evidence of any progress in resolving this matter. As my hon. Friend the Member for Stoke-on-Trent South (Robert Flello) pointed out, the number of agents using double charging in contracts is escalating. Many of my constituents who have been hit by these contracts have asked whether their lawyers can challenge them. I ask the Minister to accept this amendment and give consumers the opportunity to challenge these sorts of contracts, and to give them the legal protection that enables them to say, “This is fundamentally unfair and it infringes my rights”, and, indeed, to give sellers the opportunity to challenge them. Under these contracts, buyers and sellers are told that they cannot communicate with each other; otherwise, the offer that has been made is void. A seller may therefore be unaware of an offer that somebody wishes to make for their property, and that has to be cut back because the buyer must also include the fee. I was surprised to hear from the estate agents in Walthamstow that they always achieve 102% of the asking price of their properties, and 2% was, perhaps unsurprisingly, the fee they were charging people to buy their houses. “Who would have thunk it”—who would have thought that there would be such a close correlation?

I hope the Minister will accept that there is a genuine issue here that needs to be dealt with, and the sooner, the better. We know the pressures on our housing market are not going to go away any time soon, but although we might argue about the numbers of houses that need to be built, we can surely all agree that this is a conflict of interests that needs to be addressed. If, again, the Minister will not accept this amendment and this course of action, I hope she will set out how she will take action on this issue herself, so house buyers across the country do not have to find the extra thousands of pounds just to pay the nice fat fee for the agent.

The other amendments we have tabled in this group also address challenges we believe are creating problems in our economy, in particular through these conflicts of interest. Amendments 2, 3 and 4 relate to conflicts of interest around services, in particular debt management and log book loans. The Minister will know of the Opposition’s concern about the personal debt bubble that underpins much of our economy, and in particular the number of people who are over-indebted. We know from the Money Advice Service that 9 million people in our country are already over-indebted, and half of these families live on incomes of under £20,000. This fragile situation has arisen despite our having had for more than five years the lowest interest rates in 300 years. It is likely that interest rates will start to rise, and personal debt may well rise at the same time—after all, wages are still not keeping pace with prices—so it is all the more important that people can access credit, debt advice and debt management services in an affordable fashion.

Amendment 2 deals with the problems caused by log book loans. Members who served on the Committee will be familiar with the Opposition’s determination to reform this outdated and outmoded form of credit. There are widespread problems: more than 1,000 consumers complained about these loans to the Office of Fair Trading, and they were complaining about losses of over £1.5 million. Many of them come from the fact that these loans are based on bill of sale agreements, a Victorian type of contract that does not include modern consumer protection. Again, the Government have repeatedly voted against our proposals to reform bill of sale agreements and therefore end this outdated and quirky practice that is causing so much detriment. The Minister stated that there may well be an argument for updating the legislation, but that this is not the Bill to do it in. Those of us who saw from the title of the Bill that it was about consumer rights and protecting consumer interests were, of course, rather concerned by that, but let me point her to the concerns of the Financial Conduct Authority and Citizens Advice, which also want to see bill of sale agreements reformed.

Christopher Woolard, director of policy, risk and research at the FCA, states:

“People who use logbook loans are often in difficult circumstances with few other borrowing options…Logbook lenders have borrowers over a barrel. People don’t realise their car can be seized if they fall behind in repayments, with lenders often forcing borrowers to pay large amounts to keep their vehicle when they can’t afford to.”

Gillian Guy, chief executive of Citizens Advice, argues:

“The logbook industry is still in the dark ages and has been getting away with lawless practices.”

Its own analysis of log book loan cases found that 14% had experienced harsh debt collection practices, almost a third were not treated fairly or appropriately by the lender, and nearly 20% had not understood the terms of the loan clearly.

It is inexcusable to leave this outmoded form of credit arrangement available for lenders to use, and for them to exploit people in this way, particularly as we know that increasing numbers of people are going to need consumer credit in the years ahead because of the debts they have. We cannot understand why the Minister will not make progress on this issue. I believe she does understand that log book loans need to be reformed and that the case we are making—that bill of sale agreements have no place in a modern consumer protection landscape—so why does she feel that that should not be part of this Bill? We urge her to look very closely at our amendment, which would simply bring bill of sale agreements under modern consumer protection laws and, again, give consumers the right to challenge any agreement that does not uphold those laws. Indeed, it would be a sad indictment of all the work she has done on the other parts of the Bill and all the consumer protection laws in them if she were to say there would be a get-out clause in other respects.

Consumer Credit and Debt Management

Debate between Stella Creasy and Helen Goodman

Thursday 3rd February 2011 Commons Chamber

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

I beg to move,

That this House notes with alarm recent evidence showing a fourfold increase in the use of payday lending since the beginning of the recession and that high cost credit lenders advanced approximately £7.5 billion to low and middle income consumers in 2008 alone; recognises the problems of financial exclusion, lack of financial and debt management education, lack of price competitiveness in the unsecured lending market and the near monopoly positions of many large lenders which contribute to the high costs of borrowing; considers that without action these factors could worsen family debt, poverty and financial difficulties to the detriment of the economic recovery; therefore calls upon the Government to introduce, alongside measures to increase access to affordable credit, regulatory powers that put in place a range of caps on prices in areas of the market in unsecured lending which are non price-competitive, likely to cause detriment to consumers or where there is evidence of irresponsible practice; and believes that such caps should take account of the desirability of maintaining access to affordable and responsible credit, the likely impact on the supply of credit and the cost of enforcement, that they should be regularly reviewed and that they should use the total cost of credit, calculated on a yearly basis, to ensure that lender avoidance and distortions in price are prevented.

It gives me great pleasure to present to the House today an opportunity to put on record its support for the introduction of caps on the total cost of lending, and so protect Britain’s poorest consumers from the practices of so-called legal loan sharks. My introductory remarks are set out in three sections. I shall address, first, the problems; secondly, how the proposals would tackle them; and thirdly, in seeking people’s support for the motion, the concerns that they might have about the proposals.

To begin with, however, I shall tackle what we are not talking about today. The proposal is not about a usury law or about setting a single cap for interest rates. Previous Governments rightly concluded that that would not be the right thing to do. All the briefings that Members have received from industry lobbyists have been about such proposals, and the often cited Office of Fair Trading research is also about such an idea, but let me stress that there are flaws in that proposal, which is why we suggest that something different needs to take place. I shall also be clear that this is not a debate about how we abolish the high-cost lending market, or about stopping people borrowing. Credit is a vital part of the economy and, clearly, a part of the UK lifestyle. Indeed, one challenge that we face during our economic recovery is to encourage people to take a sensible and sustainable approach to credit, because, given how we live in the UK, it is a key part of our future.

Debt and credit is a much greater part of the UK’s psyche than any other country’s. As Third Sector Foresight points out, Britain has double the debt of continental European countries, and personal savings are at their lowest levels since the 1940s. In April last year, private debt in the UK stood at a whopping £1.4 billion, and living that way has its own consequences. Surveys by PricewaterhouseCoopers show that debt levels in our society mean that the average household is paying 15% of its net income purely on the interest it owes to service such debts.

Our focus in this debate is on a very specific aspect of credit provision. The high-cost credit market is very different in its practices in comparison with other, more mainstream forms of lending. We are talking about the payday loans of £100 until the end of the month that keep getting repeated, the doorstep lending of £200 that is offered to people so that they can buy a new sofa, and the hire purchase agreements offering deals that people sign so that their kids can have a new TV.

Above all, this debate is about the spiralling costs at the heart of such loans, because it is the rates that people charge that make this a billion-pound industry. It is all legal, and it is all growing. While some forms of high-cost lending have been with us for generations, we have also seen in this country a rapid expansion in the scale and use of these forms of credit in the past few years alone. That is driven in part by the drying up of mainstream credit. PricewaterhouseCoopers reports a staggering 79% drop in secured lending in the past year. Research by Consumer Focus predicts a rise in payday lending alone of 40% to 45% in the next few years. There has also been a fourfold increase in payday lending since 2008.

I see for myself the impact that this has on my community in Walthamstow. Our high street now has a large number of shops offering short-term loans, hire purchase agreements and credit deals. That is a badge of poverty. These companies see our fragile economic conditions as fertile ground. The aptly named Mr Crook, who is the chief executive of Provident Financial, the largest home credit company, says that he expects a growth in his target market as a direct result of the comprehensive spending review. Who does he mean by that? He means those with poor credit histories and those with no credit histories. In my cosmopolitan corner of London, one of these companies employs only people who speak more than two languages, so that they can target newly arrived residents who do not understand or know the British banking system. He also means those who are facing redundancy or are newly unemployed.

Indeed, as we see higher levels of unemployment, the need to act quickly becomes even greater. As a lady from Leicester who recently contacted me pointed out, as a public service employee on a redundancy notice she could not borrow from either her bank or her local credit union, so what other option does she have? That is when this kind of lending becomes a problem. Some can manage such credit, but the toxic mix of low incomes, perpetual interest payments and no choice affects too many people in our country.

[Helen Goodman (Bishop Auckland) (Lab)]

My hon. Friend is making her case most eloquently. My constituency also has shops where people pay possibly three times as much for white goods, furniture and so forth. Is she aware that, although the problem is intensifying, it is not new? I wonder whether she has read Proverbs 22:

“If you have nothing with which to pay, why should your bed be taken from under you?”

When people cannot pay, their beds and their fridges are taken from them.

[Stella Creasy]

My hon. Friend makes an eloquent point. Indeed, I am grateful for the support that we have had from Church Action on Poverty for the campaign and for the proposals before the House.