High-cost Credit

Tracey Crouch Excerpts

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.

[Mr Robin Walker]

My hon. Friend is making an interesting speech. She mentioned being put on a repayment programme. Does she agree that one of the more pernicious things happening in the sector is that some high-cost lending companies are masquerading as a way out and as a repayment mechanism for debts? That needs to be carefully considered when it comes to regulation.

[Tracey Crouch]

I agree with my hon. Friend—I will talk about debt advice later in my speech.

We have heard a lot about charges for people who go into unauthorised bank overdrafts. I was recently charged for going into my authorised overdraft, which I found incredibly shocking. I did not know the bank could do that, but it did. The charge was the equivalent of taking out a £100 loan from Wonga for five days. I can see why people turn to payday lenders if they sometimes get charged by their bank for going into an authorised overdraft.

We need to be aware of people’s problems when it comes to debt. We should not judge people for getting into debt or for trying to get themselves out of it. We also need to be aware of the scale of the problem. I have two wards of deprivation in my constituency, and there is an increase in the number of people turning to payday lenders. The local citizens advice bureau tells me that the average debt in Medway is £43,000. It also tells me that people from more affluent areas are turning to payday lenders for the reasons the hon. Member for Walthamstow has outlined—they find it easier to meet their everyday needs by turning to those lenders.

When used correctly, those loans can be a help. When someone needs that short-term boost—when something is broken and they need to borrow £100—it is easier for them to go to a payday lender than it is to go to their bank. We need to be clear that such loans serve a purpose. However, problems arise when they are not used correctly. That is why we need to address problems such as rollovers, which the hon. Lady and the hon. Member for Sheffield Central have mentioned.

We need to be concerned about the proliferation of shops on our high streets. It is incredibly easy for the people to get the credit they need. Thank goodness payday lending companies were not around when I was in debt. Nothing would have stopped me going in to borrow £200 to get what I wanted. I have learned my lesson, but it took a long time to do so.

On the positive measures we could take, it is important that we consider sharing data. Real-time data are incredibly important. Currently, someone who has taken a Wonga loan in the morning can go to the Money Shop or Cash Converters or the next place on the high street in the afternoon and get money out. Nobody knows how much they are getting out on any given day. We also need to look at restricting access to online credit services overnight. Many years ago, I lay awake at night worrying about debt. When people come to see me, they tell me that they cannot sleep and are hiding from their bills. They know they can go online at 2 am, when they are not thinking straight, and access instant relief of their fears. We should look carefully at that.

We need to look at supporting our credit unions. I am a saver at both Medway credit union and Kent Savers credit union. Hon. Members should do all we can to try to help to promote them so that they are recognised in the high street. That is incredibly important. If that means using flexible business rates so that credit unions are encouraged to go into the bigger shops on the high street so they have that presence, we should do that.

Finally, debt advice is incredibly important. The Government are doing a great deal to promote free debt advice. I have worked to keep the Insolvency Service in Medway. It was under threat, but was saved thanks to the campaign. We need to recognise that there are experts who can help to inform people who are finding it very difficult to get out of the situation they have got themselves into.

We must not judge the entire payday lending industry by the bad mistakes we read about and hear about in debates such as this one. We need to recognise that it plays a role in our wider credit industry. As my hon. Friend the Member for Thurrock has said, we are at a crossroads. We need to ensure we go down the right route.