Consumer Credit and Debt Management

Teresa Pearce Excerpts

Thursday 3rd February 2011 Commons Chamber

[Teresa Pearce (Erith and Thamesmead) (Lab)]

Thank you, Mr Deputy Speaker, for allowing me to contribute to this important debate. I also thank my hon. Friends the Members for Walthamstow (Stella Creasy) and for Darlington (Mrs Chapman) for tabling the motion.

Let me begin by putting the record straight. The hon. Member for Solihull (Lorely Burt) said that my hon. Friend the Member for Walthamstow was not interested in consultation. In fact, she took part in this consultation.

Incomes in my constituency are, on average, lower than those in other parts of London. Unemployment is higher, and the dole queue is lengthening. My constituents are only too well aware of the exploitative practices of the payday and door-to-door credit lenders, for they are the target audience of firms hoping to cash in on other people’s misery. I believe that now is exactly the right time to propose a cap on the cost of credit. The recession means that mainstream banks are not lending, everyday costs are rising, wages are being pushed down, and the ranks of the unemployed are growing. Increasingly, payday and home credit lenders are becoming the only option for people who are struggling to make ends meet, but that option comes at a terrible price—a price that people may be paying year after year after year.

The speech of the hon. Member for North Swindon (Justin Tomlinson) reminded me of an experience that is not part of my casework, but an actual case of mine. I recall that, when I was 21, my three-year-old daughter and I spent our first Christmas in decent housing after three years living in a slum dwelling with no bathroom. I wanted to buy a Christmas tree and some decorations, which would have cost about £10. It might as well have been £100, because I did not have £10.

I have to ask myself this: if a door-to-door lender had offered me a £10 loan, would I have taken it? I probably would. Would that £10 have involved me in years of loan payback? It probably would. Would that have become a spiral of debt which would have meant that I would not be here now? Yes, it probably would. When people are living from week to week to the edge of every pound and penny, their lives can be thrown into crisis for the want of a new pair of shoes. It is such tipping points that can send their lives up or down. It is the ultimate game of snakes and ladders. I believe in giving people a ladder, and I think that the motion provides a key rung to help people out of the despair that comes with endless debt.

Oakam and Wonga.com have stores and billboards across London offering payday loans, longer-term loans and emergency loans to people with poor credit ratings. The rates on those loans are staggering. Many of the companies that provide those loans hire only staff with second languages so that they can cynically and specifically target immigrant communities.

It is the most vulnerable people who would be helped by a cap on the cost of credit. One in 10 UK payday customers has an annual income of less than £ll,000, and according to the UK’s largest debt charity, the Consumer Credit Counselling Service, one in eight of the people who asked it for help in the first half of last year were receiving jobseeker's allowance. I believe it is our responsibility to legislate, on behalf of those who sent us here, to protect people in such circumstances, and I hope that today we will see the political will that is necessary if we are to crack down on the companies who exploit them. I support the Consumer Credit (Regulation and Advice) Bill tabled by my hon. Friend the Member for Walthamstow, and I hope that it will be given its Second Reading in the House tomorrow. It seeks to improve access to more affordable versions of credit through, for instance, credit unions and the post office network.

I am pleased that the motion recognises the problems of financial exclusion and the lack of financial and debt management education in this country. Along with more than 200 other Members, I recently joined the all-party parliamentary group on financial education for young people, which was mentioned earlier by the hon. Member for High Peak (Andrew Bingham). I hope that, through the work of that group, we can improve financial education in schools, and I hope that all its members will support the motion.

While these measures may help, their impact will be minimal unless a range of non-competitive caps on credit in the unsecured lending market are also introduced. I urge Ministers to listen carefully to the debate, to recognise that the high-cost credit market is exploitative legal loan sharking, and to step in, do what Governments should do, and regulate accordingly by capping the cost of credit for the benefit of the most vulnerable people in constituencies such as mine and many others.