High-cost Credit

Debate between Stella Creasy and Tracey Crouch

Thursday 5th September 2013 Commons Chamber

[Tracey Crouch (Chatham and Aylesford) (Con)]

It is an honour to follow the hon. Member for Sheffield Central (Paul Blomfield). I was proud to support his Bill and am sorry that it will not make its way through Parliament. I hope that the Government are listening carefully to the cross-party support that it is getting and will take forward some of the sensible measures proposed in it.

I also congratulate the hon. Member for Islwyn (Chris Evans) on introducing this debate on an important issue about which many of us feel strongly. It is also important to congratulate the hon. Member for Walthamstow (Stella Creasy), who has done a great deal to raise the issue both inside and outside Parliament. During many parts of her speech today I was nodding furiously, as I found myself in violent agreement with her on some of the important issues that she raised.

I am sorry that my hon. Friend the Member for East Hampshire (Damian Hinds) has left the Chamber. He has done a great deal of work on credit unions. I also fundamentally support the work that my hon. Friend the Member for North Swindon (Justin Tomlinson) has done on improving financial education.

The debate has been interesting and I will try not to repeat the points hon. Members have made. My hon. Friend the Member for Thurrock (Jackie Doyle-Price) said that the sector is at a crossroads, which was an interesting comment. We must ensure that we take the right path. High-cost credit is an incredibly important issue for many of our constituents and will be in future for all the reasons hon. Members have outlined.

High-cost credit is defined as credit

“comprising of payday and other short-term small-value loans”.

However, it is important to note that it is not the preserve of alternative financial services providers. There are problems in the wider credit industry. The example I will give is highlighted by StepChange. Its research shows that

“a borrower making minimum payments for 18 months on a typical”

credit

“card for an average balance of just over £1,800 pays £44 for every £100 borrowed”.

It is important that we do not exclude from the debate means of credit other than payday loans.

When I first spoke in Parliament about high-cost credit, I drew on my experience. When I came to London as a 21-year-old graduate, I worked as a researcher in Parliament, earning £7,000 a year. I got myself into a stupid amount of debt—£15,000—very quickly, not because I was trying to pay rent, meet bills and buy food, but because I wanted to keep up with the Joneses. I wanted to go out wearing nice clothes and to have good evenings out with my friends, all of whom worked in the City and earned a lot more money than I was earning. I borrowed a lot of money on credit cards, I was always at my overdraft limit, and borrowed money on store cards. I bought things on store cards that people normally pay for with small cash. I could not afford to live the life I wanted to lead in my not-very-well-paid job as a researcher.

[Stella Creasy]

I make no comment about the friendships the hon. Lady had, but does she agree that one worrying aspect of the debate on the payday loan industry—the evidence is clear—is that 80% of payday loans are for basics? They are for paying rent, and travel and food costs. People cut back as far as they can, so those costs are not equivalent to keeping up with the Joneses. It is important that we make that distinction—people are trying to cover unavoidable costs.

[Tracey Crouch]

I agree with the hon. Lady. To be perfectly honest, I was stupid. I learned a lesson. It took me seven years to pay back my debt. I learned that lesson thanks to the bank. I got to the stage of hiding from the bills and not going out. I was in a miserable place, and—the hon. Member for Islwyn will be pleased to hear this—Lloyds TSB took me aside and said, “Your credit rating is dreadful. You keep going over your overdraft limit. You will be in serious trouble if you don’t deal with this now.” The bank cut up my credit and store cards, which was incredibly upsetting, and put me on a repayment programme. The problem today is that banks do not necessarily provide the personal banking they did back in 1996-97 when I was getting myself into debt, and people are finding alternative ways in which to deal with their debt problems.

Finance (No. 3) Bill

Debate between Stella Creasy and Tracey Crouch

Monday 4th July 2011 Commons Chamber

[Tracey Crouch]

That is a good point. In fact, what troubles me most is the impact on consumers. As we have been told by Members in all parts of the House, these companies prey on people who are incredibly vulnerable, and we need to ensure that the industry behaves much more responsibly.

A response to the Government’s call for evidence on consumer credit is due shortly, and I look forward to the findings of the review. I have always had some sympathy for the proposal of a rate cap. However, it is interesting to note that Citizens Advice does not share the hon. Lady’s view, and nor does the money-saving expert Martin Lewis.

[Stella Creasy]

It is true that Citizens Advice opposes a cap on interest rates, but I think the hon. Lady will find that both it and Martin Lewis have been very positive about the proposal for a cap on the total cost of credit, which the new clause would allow to be investigated. I hope that the hon. Lady will correct the record accordingly.

[Tracey Crouch]

The total cost of credit involves more than just the high-cost lending industry, but the hon. Lady spent most of her speech talking about individual high-cost credit lending companies such as Wonga. We must find a focus, and the fact is that wider issues of consumer credit are involved. I hope that the review will come up with a solution on which we can all agree.

The Government are considering specific product regulation as part of their draft Financial Services Reform Bill. Under the proposals to establish the financial conduct authority, a new model of conduct regulation will be established that will use early and proactive intervention to ensure that consumers are protected. That is a far more pragmatic solution than the blunt instrument of taxation, which, as I noted earlier, could have the adverse and opposite effect of creating a greater problem.