Oral Answers to Questions

Yvonne Fovargue Excerpts

Tuesday 9th December 2014 Commons Chamber

[Danny Alexander]

My hon. Friend makes an important point, although I would say to her that rural communities are part of local enterprise partnership areas that benefit from the growth deals announced last year. The city deals and the devolution process we are engaged in benefit all parts of the UK. I highlight to her the investment this Government are making in transport and in broadband as particularly important in driving growth in rural communities.

[Yvonne Fovargue (Makerfield) (Lab)]

T9. The Office for Budget Responsibility has forecast that individual unsecured debt will rise over the next five years by a staggering £360 billion, which is a record 55% of total household income. More people will be thrust into poverty and forced to go to food banks, and that will not be because more of them know about them or that poor people cannot cook. Does the Chief Secretary agree with the Chancellor that the best way to reduce his borrowing is to increase everyone else’s debts?

[Danny Alexander]

That same economic forecast suggests that an extra 1 million people will be in work from the record levels that we have at the moment; that there will be a consistent rise in real incomes over the next five years; and that the United Kingdom has the strongest economic growth of any developed country in the world and the strongest job creation. Those are the facts about the United Kingdom and the hon. Lady should welcome them.

Consumer Rights Bill

Yvonne Fovargue Excerpts

Monday 16th June 2014 Commons Chamber

[Yvonne Fovargue (Makerfield) (Lab)]

I add my congratulations to those of my hon. Friend the Member for Bishop Auckland (Helen Goodman) and those that I am sure you have received from Members across the House, Madam Deputy Speaker.

I want to concentrate on amendments 2 and 3. I think that there is cross-party agreement that logbook loans are an anachronism. If the Government do not remedy that anachronism, it will be a missed opportunity. To leave the Law Commission time to go through the outdated legislation would take too long for the vulnerable consumers who are affected. I know that because I have been a member of the Joint Committee on Consolidation Bills and in 2010 we repealed something to do with the dissolution of the monasteries.

We cannot wait that long for the bill of sale provision to come off the statute book. It was never intended to apply to loans on vehicles such as cars and it should be abolished now. If it is not abolished, consumers need to be able to challenge it in court. I am sure that they will be supported in that by the advice agencies that brought the attention of the House and the country to the anachronism that is the bill of sale legislation.

The Financial Conduct Authority said only two weeks ago that such loans are high risk. It is considering the issue already, but while it is doing so people are taking out the loans either because they are not aware of the pitfalls or because they are their last or only resort. They put their only asset, their vehicle, on the line, pay the companies, end up owing money and still have no vehicle. They are in a worse position than if they had not taken out the loan in the first place.

I also want to mention those whom we might call the innocent consumers—those who buy a vehicle that is subject to a bill of sale. It does not show up on the HPI register, as hire purchase does, and the first they know about it is when somebody comes round to repossess the car because they are not its legal owners. They can never be its legal owners while there is a bill of sale on it and they are left with no vehicle and no money. It is about time that we considered the bill of sale legislation. A law that was passed in the 1870s should not apply to today’s consumer market and should be allowed to be challenged in the courts if not repealed immediately.

I have long campaigned on debt management companies. It has always seemed particularly perverse to me that people in debt should pay to get out of it. There are usually two reasons given by the companies for why people turn to them. The first is the lack of knowledge about the availability of free advice. Frankly, I am not surprised. I regularly get texts telling me that there is new Government legislation, that my debts can be written off and that I am entitled to payment protection insurance compensation and various other things, and debt management companies are one of the worst offenders. The Information Commissioner needs more powers to stop that misleading advertising.

There is also a lack of provision for advice. I thank the Minister for her reply to my question on that point, which said that the Money Advice Service sets its own budget. Yes, it does, but as the Government rejected new clause 6, which would have meant the increased levy automatically going towards increasing the amount of debt advice, I hope that MAS will listen to the strength of feeling on both sides of the House and increase its budget to ensure that the introduction of payday lenders into the levy will increase the total amount raised and that it will not simply keep it at the same level with the other people paying less.

There needs to be more funding for free debt advice. As we know, some 2.5 million people are in fee-charging debt management plans. That is 2.5 million people who, if those plans were not available, would need free debt advice. There is obviously a need for that funding. If the interest rate were to rise by only 0.5%, which is quite likely, an extra half a million people would be pushed over the edge from just about coping. It is essential that the Money Advice Service looks at the trends and asks for an increased budget.

There is also a risk that those companies may go out of business and while doing so will not pay their creditors. A company in Manchester in my area of the north-west went out of business two weeks ago. About 2,500 people who had a plan with it were left with no money. People had been paying into that company, assuming that it was going to creditors, but the company has gone bankrupt. It is time that we challenge these debt management companies. They push people further into debt and can charge 50% of what somebody owes. Therefore, if someone owes £18,000, that is another £9,000 on the debt for something that an organisation such as StepChange or a citizens advice bureau can do just as competently for free. Indeed, in many ways they will do it better because such organisations have links with other companies and, for example, will know all the remedies for insolvency. They will put forward the remedy that is best for the consumer, not best for the company. To allow debt management companies to continue without being challenged on pushing people further into debt should not be allowable, and I fervently support the amendment to clause 3.

[Jenny Willott]

May I add my congratulations to you, Madam Deputy Speaker? You will get bored with it soon, but at the moment I am sure it is probably still quite a novel surprise.

I share the concerns of the hon. Member for Walthamstow (Stella Creasy) about the practice of double charging by estate agents. That issue has been raised in the House a number of times and in Committee. Under existing legislation—in particular consumer protection regulations and the unfair contract terms law—as well as their own industry codes, estate agents must already make fees and charges clear for consumers. I believe that there are risks in rushing into further legislative measures and applying them prematurely, which is why a better way of addressing the issue is through estate agent redress schemes.

As the hon. Member for Walthamstow mentioned, on 7 May I met the property ombudsman and ombudsman services: property, to draw their attention to my concerns on this issue, and those raised by hon. Members in Committee and the House. Both redress schemes have agreed to monitor any complaints they receive, and more is being done. The property ombudsman has committed to producing new guidance that will put in place strict controls on the practice of charging the buyer a fee, or charges being placed on both buyer and seller, and the potential for conflicts of interest. That guidance will ensure that agents recognise their obligations under the ombudsman’s code of practice for transparency, disclosure and avoidance of conflicts of interest. If the guidance is not complied with, agents will be in breach of that code.

Estate agents must belong to an ombudsman service, and ombudsmen have strong powers to tackle bad behaviour by estate agents. For example, they can give a financial award to the complainant or enforce obligations on the estate agent. As a last resort, estate agents can be struck off a redress scheme. Because it is a requirement on estate agents to belong to a redress scheme, if they have been struck off, they are effectively out of business and cannot continue to operate. If they continue to operate under those circumstances, it is a criminal offence.

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[Jenny Willott]

No I cannot, but I will write to the hon. Gentleman to give him more information on that.

The ombudsman has committed to calling an early meeting of all interested parties to discuss the need for stricter controls, and I assure hon. Members that new guidance is being worked up for the industry as a matter of priority. The hon. Member for Walthamstow raised concerns about estate agents discriminating against buyers who will not take services from them—for example, mortgages and so on. Discriminating against buyers for refusing services from an estate agent is already banned and covered by the regulations.

A number of hon. Members mentioned logbook lenders. We have discussed that issue a number of times and it is clearly a matter that concerns people across the House. Responsibility for consumer credit regulation, including logbook lenders, transferred from the Office of Fair Trading to the Financial Conduct Authority on 1 April.

[Yvonne Fovargue]

Will the Minister tell the House how many licences to logbook lenders have been revoked by the FCA? What has happened to the bills of sale for those who have borrowed from a company whose licence has been revoked, if indeed there are any?

[Jenny Willott]

That responsibility has only just been transferred to the FCA, and it is working with credit companies that must register with it. I believe that those companies start registering on 1 October, which gives them time to ensure that they comply with the regulations. From that date, therefore, the FCA will start to process licence applications. At the moment it is a little premature to answer the hon. Lady’s question, but the issue will be raised later in the year and I am sure she will ask Ministers at that point.

There are concerns about the way logbook loans operate and their impact on consumers. Consumers will be far better protected under the FCA regime than under the old system. Logbook loan providers are now required to meet the standards that the FCA expects of lenders, including making thorough affordability checks and providing adequate pre-contractual explanations to consumers. They are also subject to the FCA’s high-level principles, which include the overarching requirement to “treat customers fairly”.

Consumer Rights Bill

Yvonne Fovargue Excerpts

Tuesday 13th May 2014 Commons Chamber

[Stella Creasy]

Indeed. “Take that” is the answer we would give on many of these things.

New schedule 1 looks at the cumulative impact of Government policy on households. Currently, among European nations only Estonia has a worse proportion of people struggling to pay their energy bills than the UK. Yet one of the issues that have been debated across the House is the impact of some of the long-term planning on the infrastructure building projects for our energy system in this country and the consequences for energy bills. Indeed, in November last year the National Audit Office published a damning report stating:

“Government and regulators do not know by how much overall expected new investment by the private sector in infrastructure will increase household utility bills and whether bills will be affordable.”

We know that the concept of affordability is contested by some, and we know from the evidence the Department for Environment, Food and Rural Affairs gave the Public Accounts Committee that it does not even have a target for affordability in relation to water bills. Yet many of us will have seen at first hand in our constituencies how people are struggling with those basic costs of living. We think that the Government should be able to publish an analysis of the impact of their own policies on the cost of living. Paragraph 7 of new schedule 1 asks for such a report to be provided by the Treasury. I am sure that Government Members who support transparency will want to support it.

I will say a little about new clause 2, which concerns implementation. After all, we think that with this framework we are offering the Government a way forward on information and advocacy, but we also recognise that it is no good having rights written on paper if they are not a reality in practice. One of the concerns that came up repeatedly in Committee—many of the Opposition amendments that the Government opposed related to this—is how consumers will actually access rights in practice. When will they know that they have a right to a repeat performance? At what point will the BBC tell us that we have a right to a price reduction because we did not like its commentary?

Those are all questions that the Minister said would be dealt with by the implementation group. It became a mythical beast in our minds, because it will cover so many issues, from point-of-sale information, information on remedies open to consumers, how businesses should be informed of these rights, the length of time before people can get a refund, the time limits people would get on a repair, replacement or repeat performance, or even testing consumers’ understanding of their rights.

Time and again the Minister said that we should leave it to a body of experts, which we believe—we are not entirely sure—includes organisations such as Citizens Advice, Which?, the Trading Standards Institute, the British Retail Consortium and even the Financial Conduct Authority. They are worthy bodies indeed to look at these issues, but we had some concerns in Committee, having seen some of the minutes of their meetings, which are not very frequent. Despite their good works, any recommendations they make would not be statutory guidance. Therefore, new clause 2 simply states that the recommendations they make about the rules on how the Bill should be implemented should have meaning, that they should have real teeth, that it is no good saying that it would be good for consumers to be informed of their rights if that does not actually happen at the coal face or at the shopping till.

In proposing this first group of new clauses, we are trying to make this Bill what it could be. We are trying to find the hope at the bottom of Pandora’s box. We are trying to ensure that consumers have access to the information and advice they need to make good choices the first time around. The old model of politics, in which progress depends on centralising these abilities, will no longer work with our communities. The task at hand, we believe, is to give the public more control and more power over their lives to enable them to make the choices that they want to make first time. As it stands, the Bill will leave citizens to navigate services alone, without the resources, either money or skill, to struggle to make them work.

We want to do something different. We want to reform the public sector by devolving power to people, investing in the prevention and co-operation they need to make services work for them, to stand shoulder to shoulder with every consumer and every citizen, not blunting the efforts of those who already fight for services, but enabling more people to give the feedback about the kinds of services we want in the public and private sectors. We believe that new clauses 1, 2, 3 and 5 and new schedule 1 will enable that framework to be put in place, and we hope that the Government will respond positively to the points that we have made as a result.

[Yvonne Fovargue (Makerfield) (Lab)]

I rise to speak to new clause 10, which stands in my name. Although I support paragraph 5 of new schedule 1, it is not just the lack of consent that I think is the problem with nuisance calls. My new clause has been promoted by the huge growth in nuisance calls and messages. In fact, on each occasion when I have been out on the streets recently, at least three people have come up to me to talk about the explosion in unsolicited contacts and said, “Can’t something be done?” There is a weak data protection regime and consumers feel that they have lost control of their personal information.

I am convinced that if I was on a desert island the first call I would receive would be someone offering me a loan to get off the island. For people in financial difficulties, in particular, nuisance calls and text messages offering high-cost credit, such as payday loans or fee-charging debt management services, can lead to the temptation to take out products or services that, if mis-sold—they often are—could substantially worsen their situation.

StepChange has done some research that shows that 1.2 million British adults have been tempted to take out high-interest credit as a result of an unsolicited marketing call or text. There is legislation to protect consumers against these practices. Unsolicited promotional electronic messages are banned, but the ban is widely flouted and inadequately enforced. My new clause would lower the threshold for firms breaching the Act. At the moment, the Information Commissioner’s Office can issue enforcement notices against these companies only if “damage or distress” can be demonstrated. It can also issue monetary penalties to firms misusing consumer data or breaking the laws on electronic communication under section 551 of the Data Protection Act, but only if

“substantial damage or substantial distress”

to the consumer can be demonstrated.

I believe that those thresholds are far too high. They should be lowered so that firms can be issued with enforcement notices or fined for breaching the Act without the Information Commissioner having to demonstrate “damage or distress” or

“substantial damage or substantial distress”.

The current thresholds have resulted in a situation where it is next to impossible for the Information Commissioner to enforce penalties against these firms. A recent tribunal decision went against the Information Commissioner when a £300,000 fine was overturned despite the defendant sending hundreds of thousands of illegal text messages.

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[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

I rise to speak in support of new clause 4, which is in my name. Unlike other Members present, I was not familiar with this Bill until recently. I did not serve on the Bill Committee. The Minister may recall that I asked her an oral question two or three months ago about issues relating to warranties and additional warranties sold by retailers. My question arose not only from a specific constituency case, but from the related concerns of a number of constituents who have contacted me over the past three or four years.

In her response, the Minister drew my attention to this Bill, which was in Committee at the time, and suggested that I should look to it for comfort, so I did. I also read the Committee’s debates on warranties. My hon. Friend the Member for East Lothian (Fiona O'Donnell) is in her place and I recall from my reading of the proceedings that she raised some issues relating to electronic goods. She mentioned her experience in the past and I think she said that the situation may have improved since then. However, I tabled new clause 4 because of an experience that demonstrates that that is certainly not true in all cases.

My hon. Friend the Member for Walthamstow (Stella Creasy) has already referred to the implementation group, which seems to be the catch-all for everything that is going to happen at some unspecified point in the future. I understand that the intention behind the group is that it will ensure that legislated rights are translated into something meaningful for consumers. It is entirely right and appropriate for the new clause to seek to ensure that the implementation group should provide, at a specific point after the Bill receives Royal Assent, guidance on some specific issues.

Constituents tell me that what they are actually sold often turns out to be very different from what they were told they were being sold, particularly on additional or supplementary guarantees and warranties. A retailer will often tell them that what they are being sold will enhance their consumer protection and enjoyment of the product and provide them with a safeguard. It then turns out, however, that there is nothing more in the warranty than that to which they are already legally entitled or what is included in the manufacturer’s own warranty.

[Yvonne Fovargue]

Does my hon. Friend agree that it is not just that the warranties are sometimes mis-sold, but that companies such as BrightHouse in the rent-to-own market make it compulsory for new customers to take out a warranty when they may already have their own household insurance on those goods?

[Tom Greatrex]

My hon. Friend makes a very important point about that specific market. I am also aware, as a result of talking to my constituents, that there is almost an expectation on people working for other retailers to sell these warranties, even if it is not obligatory for consumers to have them. In some cases, they even receive a commission for doing so.

That leads me to my concern about a specific case, in which what was written in the signed document was clear, but the way in which the warranty was described and explained to the consumer certainly was not clear and was very different. In that case, a constituent of mine bought a television set from a high street electrical store. He was told that the additional warranty he took out—on top of the manufacturer’s one—would entitle him to a new set if anything went wrong within the five-year period. His television set broke down during that period, but he found in the small print that he was only entitled to a repair or a replacement, which was exactly the same as the manufacturer’s guarantee. That meant that, on the basis of what he was told in the store, he had paid what for him was a significant amount of money every month for something that was effectively worthless.

Fundamentally, I believe that retailers have a duty to consumers not to sell them products that they know to be worthless, which appears to be the case if a warranty simply duplicates existing rights. Warranties very often apply to electronic goods that are significantly expensive, so we can see how a consumer could easily be persuaded to pay for an expensive warranty scheme that delivers no extra benefit, as the retailer is often probably very well aware. That is an area on which the implementation group should certainly undertake some work. Some provisions in the Bill—for example, clause 30—relate to warranties, but they do not seem to cover that point.

In that case, I took up the issue with both the company and my local trading standards office. The trading standards office was very sympathetic, but the long and short of it is that such practices are entirely legal, and there is nothing it can do other than to advise people to be more aware next time. That will not be much comfort for someone who has spent a significant amount of money on something that does not meet their expectations or provide the protection to which they think they are entitled. I of course understand that this problem is not new—it was raised several times in Committee as well as previously in the House—but the implementation group should be charged with ensuring that it is dealt with, and the new clause presents an opportunity for that to happen.

My new clause also addresses the management of deposits. I tabled it after a local small business approached me about an account held with a telecommunications firm— TalkTalk. As many hon. Members will be aware from their constituents, telecommunications contracts for small businesses often require quite sizeable deposits. My constituent was asked to provide a bond of some £900.

The size of such deposits has been a subject of interest for the regulator. I draw the House’s attention to the outcome of a dispute between Apple Telecom Europe Ltd and BT on the level of security deposit required for services, in which Ofcom stated that it was unwilling to determine what an appropriate deposit might be. In the light of that, it is clear that the regulator is not currently prepared to step into that space, but the size of some deposits places a clear responsibility on policy makers to ensure that the rights of the consumer or service user are protected.

After terminating the contract, two issues arose for my local business: first, TalkTalk was in no hurry to return the deposit; and, secondly, when it did return the deposit, it did so without any interest. On the first point, TalkTalk made it clear that it would hold on to the bond beyond the end of the agreed three-year contract. Effectively, it intended to hold on to the bond or deposit until my constituent ceased to be a customer, at which point the onus was on my constituent to write to TalkTalk to request the return of the money. My sense is that the responsibility in that scenario is the wrong way round. It places all the obligation on the consumer, and all the potential benefit of not meeting the obligation on the retailer. Because the retailer was not required to return a bond in a timely fashion, it is clear that my constituent missed out on substantial interest payments on the £900. Given that such contracts may well be for significant lengths of time and may then be renewed, the money amounts to a significant figure over time, particularly for small businesses; it is far from trivial.

My new clause addresses both concerns by requiring the implementation group to report on the length of time for which a retailer may retain a bond after the termination of a contract and on the payment of interest on the money. It would not be unduly burdensome for the company to be required to place bonds in a separate account, the interest on which could be returned to the consumer at the end of the contracted term. I am sure that the Minister is aware of the significant precedents for interest to be paid on money that is held. For example, solicitors are required to place moneys they hold on trust for a client in separate interest-bearing accounts, as is made clear in the professional code of ethics given in the Solicitors Regulation Authority handbook. Equivalent provisions cover other professions in which businesses hold money on trust—for example, an accountant who holds funds for a client to settle a forthcoming tax bill. Beyond such examples, it is clear that there is a substantial licence for abuse. There have recently been concerns in the energy market about moneys retained from excessive direct debit payments. One of the Minister’s colleagues in another Department described it as unacceptable, and said that something needed to be done about it, and the same case can be made in relation to my concerns.

I am conscious that the guidance and regulation arising from the work of the implementation group will not apply retrospectively, and so will not be of direct benefit to those involved in the two cases that I have outlined. However, their experience carries important lessons for all of us to bear in mind, and their cases might and probably will be repeated along the same lines. For that reason, I implore the Minister to look sympathetically at new clause 4. I hope that she will see that it is about enhancing the rights of consumers who, in many regards, have been and are being given poor advice and are not getting the service that I am sure she and all other hon. Members would expect.

The work of the implementation group will obviously be significant, given the number of times that the Minister has referred to it in Committee, and I am sure that she will mention it again this afternoon. It is important that the implementation group get on and deliver something, as the many people who have been following the progress of the Bill will expect. The new clause represents just one way in which there is a very clear path for the implementation group to follow in taking some action to benefit consumers and small businesses across the whole of the UK.

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Extended warrantees can offer consumers valuable additional benefits if done properly, such as accidental damage cover, regular servicing and so on. Before consumers buy extended warrantees in the shop at the same time as buying electrical goods, they must be informed of their statutory rights and their right to cancel the extended warranty. In 2012 the Office of Fair Trading found recent significant improvements in the market, and although we recognise that there have been issues in the past, more and more consumers are now shopping around when looking at warranties. That is driving competition between warranty providers, which seems to be increasing quality and lowering price.

[Yvonne Fovargue]

Will the Minister elaborate on how that would affect customers of organisations such as BrightHouse and PerfectHome, where the cost of an extended warranty is included in the price of the goods and is compulsory? What rights do those customers have to cancel and get some money back, apart from giving back the goods?

[Jenny Willott]

The issue is whether extended warrantees provide anything over and above the statutory rights provided under the law. If companies charge more just to provide statutory protection, that would be prohibited under consumer protection regulations. A purchase that somebody would make, such as a hire purchase or whatever, would depend on the terms of their contract. If the contract contains terms that are unfair, they may well be on the grey list—we will come to that in future discussions on the Bill—and such terms may be challengeable in the courts on grounds of fairness. If the hon. Lady is concerned about specific terms in the Bill, she might raise them at that specific point in our debate to see whether they would be covered.

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[Justin Tomlinson (North Swindon) (Con)]

I have a huge amount of admiration for the hon. Member for Makerfield (Yvonne Fovargue), who tabled new clause 11, and who brings plenty of front-line experience to the House. She has taken a cross-party, constructive and positive approach on a number of issues, and has a good, strong record of influencing the Government’s opinions.

The new clause is, in effect, the BrightHouse clause, and I was moved to come and speak about it because I had seen the company’s recent television advertisements displaying the cost of renting washing machines, televisions and even the sofas on which people could sit while using the other articles they were renting.

There are two parts to the proposals that I urge the Government to seriously consider. The first concerns displaying the total cost, because often the weekly or monthly repayments seem relatively reasonable but once we translate them over the entire period of the loan, we start to realise they can be a very expensive way to purchase an item. The work I have done on the all-party group on financial education for young people was centred on empowering consumers to make informed decisions, and that should also be a priority in respect of consumer credit regulations. It is all about making sure consumers can make an informed decision, and when the facts are displayed in cash terms even those with limited financial ability are able to make a relatively informed decision.

The point about protecting consumers by making sure they can afford the products is also important. We are moving towards that in the high-cost lending market. It is what we do with bank loans, for instance, and I do not think it is unreasonable to have it in this context, because this is in effect a loan, as until the person has completed the purchase—until they have paid 100% of those monthly or weekly costs—the item is not theirs. If they fall over at the 99% stage, it is returned. It is therefore in effect a loan that gives the person something at the end, so there should be protection because all too often consumers who have no chance of completing 100% of the payments are getting themselves into an expensive way of accessing items. There is merit in those two particular areas and I hope the Government will give them serious consideration.

[Yvonne Fovargue]

I am chair of the all-party group on debt and personal finance and we have done constructive work on many of these issues. I support the new clauses and I am pleased that new clause 23 addresses the Victorian practice of bills of sale. They are used for a purpose for which they were never intended. That does not just affect those who take out a loan by using them; it also affects people who do everything they can to check hire purchase information and the credit agreement on the car in question but who do not know their car can still be taken at any time.

I want to speak to my new clause 9, which deals with the problem of credit broking firms. I believe they are the new wild west in this area. They offer, for a fee, to find consumers a loan. In too many cases they take the fees from the consumer and do not give them a service at all, or they find them an unsuitable loan that they do not want. Under some circumstances consumers can get a partial refund, but they often struggle to get these firms to give the refund.

There was a super-complaint by Citizens Advice in 2011 and the Office of Fair Trading concluded:

“At the first available opportunity, the Government should carry out an impact assessment to establish whether legislative change would effectively address the consumer detriment caused by upfront fees in the credit brokerage sector both in the immediate and longer term, including considering a ban on credit brokers charging upfront fees”.

The Government declined to do this, saying that the new OFT guidance issued in response to the super-complaint should be given time to work. It has had two years to work and I am still getting evidence of problems.

I would like to mention a recent constituency case that caused me to look into the practice of one particular company, Myloan. The 18-year-old daughter of a constituent tried to get a loan; unbeknown to her mother and father, she was desperate. She went to Myloan in January. She completed the process and was advised that it could not loan to her, but she had given it her bank account details because it said it would find her a loan. It took the 16-digit number, the security number and an application fee of £68.99. It then processed the application. It sent her details off to 13 other companies. No companies offered her a loan, yet every company took an application fee, and she ended up a further £375 in debt. The majority of that money was taken within nine days of the initial approach. She was 18 and she did not know what would happen if she did this. It is clear that she was taken advantage of by this company.

I looked into this company and there were pages and pages of complaints on the internet of it taking fees and people not getting loans. We need to act now to stop vulnerable consumers being cheated by these companies.

I now wish to deal with the BrightHouse clause, which was mentioned by the hon. Member for North Swindon (Justin Tomlinson). It deals with companies that offer household goods to customers on a rent-to-own basis, whereby, again, they make weekly payments and own the product only once the final payment is made. I am using BrightHouse as an example because it is the largest rent-to-own company in the United Kingdom. It has more than 270 stores and plans to expand at a rate of about one a fortnight. These stores have become a common feature on the high street and tend to be found in more deprived areas. Indeed, it has been remarked that having a BrightHouse store is now a signifier that the area could be deprived, not that BrightHouse’s stores are downbeat or shabby—they look really good.

A TV researcher contacted me about BrightHouse because she had gone into one of its stores to look for a bedside cabinet and was appalled by the amount BrightHouse was charging a week. People who are unable to pay outright for goods and may previously have gone to get a social fund loan now cannot get one and have to use these weekly repayments. They allow customers to pay in small weekly chunks, repayable over several years. That can be convenient but there is a catch or two—if we include the insurance that is included, there is a catch or three. BrightHouse defends adding everything together by saying, “Our target customers are mostly women and they like things simple.” Well this is one woman who does not agree with BrightHouse on that one. Not only do its customers pay a higher price—often higher than is paid in Harrods—but at a typical APR of 69.9% the loan is extortionate. For example, customers can buy an HP Envy 120 all-in-one printer from BrightHouse for £322.23, which will end up costing £520 by the time they have paid £5 a week over 104 weeks, whereas John Lewis has the same product for £149.99.

[Justin Tomlinson]

Obviously, I support the principles being expressed here. The key thing is that the vast majority of consumers would not be able to calculate the total cost with an APR—even Treasury Ministers would struggle to do that—which is why it is so incredibly important to have everything displayed in cash terms. That is the simplest form for any consumer, allowing them to make an informed decision.

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[Yvonne Fovargue]

I totally agree with that. I do not believe many customers know how over the odds the costs are. They cannot use a comparison, because they do not have the £150 to go to John Lewis to pay the cost straight off. They think that they are paying a bit more, but they are paying a fortune more—they are paying nearly five times as much. My new clause would require stores to set out all the costs, and I make provision in respect of similar goods because BrightHouse has occasionally changed one figure or a letter at the end and said, “There isn’t a comparable good.” There is a comparable good, but BrightHouse has just changed an X or a Y at the end of the goods.

Customers may still choose to shop at BrightHouse —I would not stop them shopping there—but they need to have the full facts. Clearly, low weekly payments are what make BrightHouse seem attractive to so many, but that does not mean they are affordable. BrightHouse encourages its customers to take on more and more loans; I have had reports of people being rung at home with tempting news of the latest in-store arrivals, keeping the customers in a constant cycle of debt. Small weekly payments quickly mount up and become unaffordable. There is talk about people buying the big TVs, but the other problem is that that is the only option in BrightHouse. It does not have the smaller goods; it has the big plasma TVs. BrightHouse does not stock the range of goods that people can shop around for.

I have encountered a case of a customer making weekly payments of £75 to BrightHouse, from a benefits payment of £100 a week—it is no wonder people cannot survive in such circumstances. My new clause would ensure that BrightHouse has to carry out proper affordability checks. We are asking payday lenders to do that, so why should the rent-to-own companies not have to do it as well? Including the insurance does not provide value for money, but people will not challenge it under the unfair contract terms because, in general, the people who go to BrightHouse do not want to challenge and go to court, as it is a frightening experience. So my new clause will ensure that these companies cannot enforce taking out the cover.

The last part of my new clause deals with repossession, because a lot of evidence shows that a missed payment or two leads to the loss of the goods concerned, often without a court order, despite the fact that the customer has paid the true cost of the goods several times over. BrightHouse says that that is done only with the customer’s consent, but many people have been left in dire straits when essential items such as their fridge or washing machine have been taken, often at short notice. The company has a perfect right to take the goods, but there are ways of doing it fairly. My amendment ensures that proper procedures are followed, and that customers are not pressurised into giving back goods for which they have paid a considerable amount. I am not against the services that BrightHouse offers, but I am against a business model that is so stacked against the customer that it amounts to little less than exploitation. There is a huge irony when the poorest in society pay the highest prices. BrightHouse and others like it should give thought to their customers and their ability to pay. Hopefully, this amendment will concentrate their thinking.

--- Later in debate ---

[Jenny Willott]

The hon. Gentleman is absolutely correct. We only have anecdotal evidence at the moment, but it is clear that a significant number of lenders have already withdrawn from the market because they know they will not be able to comply with the rules, which are extremely tough. As he said, that is absolutely as it should be. People who cannot comply with the rules are withdrawing, and consumers are being protected as a result.

Free debt advice is currently funded by a levy on lenders channelled via the Money Advice Service. As payday lenders are now regulated by the FCA, they too will contribute to the levy. The new clause tabled by the hon. Member for Walthamstow would duplicate the existing funding arrangements for debt advice. It is important that we put on the record the fact that payday lenders will be contributing to money advice services via the levy.

It is also important to note that the FCA is taking steps to ensure that vulnerable consumers are aware of the free debt advice available to them. It requires all high-cost, short-term lenders to signpost their customers to free debt advice at the point at which a loan is rolled over, and all payday lending adverts must include a risk warning and information about where to get free debt advice.

[Yvonne Fovargue]

Will the Minister confirm that the amount raised by the levy will increase as the payday lenders are brought into it and that the amount paid will remain the same and will not simply be spread more thinly among the lenders?

[Jenny Willott]

To be totally honest, I do not know the answer to that question, but I will write to the hon. Lady to clarify that point.

Similarly, the levy will duplicate the Government’s existing support for credit unions. The Government are already investing £38 million to support the sustainable growth of credit unions to help them meet borrowers’ needs, as highlighted by the hon. Member for East Hampshire (Damian Hinds). Through that expansion, credit unions could save people on low incomes up to £1 billion in interest repayments, compared with going to a payday lender.

The Government therefore firmly believe that consumer choice and protection will be substantially strengthened by the new FCA regime and the ongoing Government support for credit unions. For the first time, payday lenders and other consumer credit firms will start paying their fair share towards funding free debt advice through the Money Advice Service, so the Government are already dealing with many of the issues that have been raised today.

Turning to debt management companies, the Government share the concerns about the potential for detriment to occur to consumers who take out debt management plans. There has been increasing media attention and people are becoming increasingly aware of the problems affecting some consumers. I also recognise the importance of protecting that particularly vulnerable group of consumers. The Government’s focus is on comprehensively reforming regulation in this sector. Responsibility for regulating debt management firms, as with all other consumer credit firms, has been transferred from the OFT to the FCA. As with customers of payday lenders, those participating in debt management plans will be far better protected under the new FCA regime.

The FCA has stated publicly that debt management firms must start putting consumers first and that it is unacceptable that people who are struggling to make ends meet are being talked into unsuitable plans. The Government have made sure that the FCA has robust powers to protect consumers who use debt management firms. The FCA is proactively monitoring the market and has a broad range of enforcement tools that it can use to punish breaches of the rules. There is no limit on the fines it can levy. Crucially, it can force firms to pay redress to consumers. The FCA will thoroughly assess every debt management firm’s fitness to trade as part of the authorisation process—the same process that applies to payday lenders.

Given the risk to consumers, the FCA has said that debt management firms will be in the first phase of credit firms that are required to be fully authorised. Its rules make it clear that the fees charged for debt management plans should not undermine the customer’s ability to make significant repayments to their lenders throughout the duration of the debt management plan. Concerns have been raised, including by the hon. Member for Walthamstow, about the huge proportion of somebody’s payment that, in some cases, goes to the debt management firm rather than the creditors. That is a matter of significant concern.

Amendment of the Law

Yvonne Fovargue Excerpts

Thursday 20th March 2014 Commons Chamber

[Yvonne Fovargue (Makerfield) (Lab)]

I welcome one measure in the Budget that has had relatively little publicity: start-up support for regional airports to link up with future markets by supplying new routes. Manchester airport and other regional airports are key drivers of local economies. Encouraging new routes and businesses into the regions is vital, and I look forward to seeing more details on that.

I want to move on to one of the central planks of the Budget: the measures for savers. Help for savers is welcome, but this help does not target those with little or no savings. A report produced by HSBC last year showed that 25% of people across all age ranges have little or no savings. Indeed, 33%—a third—of people in the 18 to 44 age range have no savings at all. On the basis of that evidence, HSBC estimates that 8 million people in the United Kingdom have no savings.

Many of my constituents can relate to that. They are indeed the “makers and doers” referred to by the Chancellor, but they are not making do. They are juggling their finances, with no spare money to save for a rainy day because there has never been enough sunshine. These are the people who turn to payday lenders when there is a broken washing machine, or when the children need new shoes and school clothes. If the Chancellor is serious about keeping people out of the hands of the payday lenders or “pay weekly” stores such as BrightHouse, they should be helped through savings measures. They are the people most at risk of descending into a spiral of debt and who end up seeking help from citizens advice bureaux or StepChange. In fact, figures from StepChange show that only 5% of people who have sought its help have any savings.

Simplifying and raising the limits for individual savings accounts are likely to make little difference to those in middle and low-income households who have few if any savings. Just one in four households with incomes of less than £400 per week has an ISA, compared with half those with incomes between £700 and £1,000 a week. Research shows that matched savings and savings account bonuses give lower-income households a much stronger incentive to save than interest rates or tax reliefs.

The additional ISA changes will have cost the Exchequer £565 million a year in lost tax on savings by 2018-19. Surely that money could be better spent on providing savings account bonuses or matched savings targeted at those in lower-income households, who have the least resilience to financial shocks. In fact, the matched savings schemes introduced by Labour were one of the first things to be abolished by the coalition Government in 2010, on the grounds that “the country could not afford them”. As the money and the will to encourage savings clearly now exist, why do the Government not consider reintroducing, and even expanding, such schemes? A savings target of just £500 for low-income households, which represents just below the average payday loan debt owed by StepChange clients, could be just that “rainy day” buffer that people need to keep the wolf—or perhaps I should say the shark—from the door.

Yet again, we have a Budget that does little for those on the very lowest incomes. Raising the income tax threshold to £10,500 will do significantly more for those who are paying the higher rate of tax and earning up to £100,000 a year. They will gain £1.92 per week, whereas those who are working full time on the minimum wage are highly likely to be receiving housing and council tax benefits, and will therefore gain just 29p per week. At this rate, even if they saved every penny of the increase, it would take more than 100 years for them to be able to take advantage of the new ISA limit, and 33 years for them to have the buffer of £500. No wonder unexpected expenditure falls hardest on those households, making the need for incentives to help them to save more urgent than ever. No wonder a payday loan is taken out every four seconds in this country.

This is not a Budget that helps the hard-working families in my constituency who face a cost of living crisis. It is not a Budget for those who are struggling to get by, and to whom saving even £500 seems an impossible dream. The Chancellor could have helped those people, but he chose not to. He could have taken on the payday lenders by helping to eliminate the need for them, but he chose not to. This is not a Budget for the many in my constituency; it is a Budget for the few.

Consumer Rights Bill

Yvonne Fovargue Excerpts

Tuesday 28th January 2014 Commons Chamber

[Vince Cable]

Many of these issues are dealt with through small claims courts. I recognise that there is often a difficulty in enforcing claims in the small claims courts. I am not sure that legal aid is the central issue there. It is a question of ensuring that, when court remedies are imposed by the courts, they enforce them and there are proper fines on companies that do not yield at that point.

The measures on the civil courts seek to ensure that there are properly specified rights aimed at giving consumers their money back, giving them more information and increasing business compliance. We must try to ensure that the measures are reasonable and proportionate, and that there is flexibility. Let me give a concrete example, because this is a slightly abstract and legalistic issue. Under a more flexible regime, a furniture retailer that has made false promises on delivery dates may not only have to give consumers their money back, but have to advertise in the press or social media what they are doing to put the situation right. They may also be required to change their internal systems to ensure that there is no repeat of the breach of the law. Essentially, the changes will enable enforcement to take place in a much more flexible way that reflects the circumstances of particular companies and customers.

[Yvonne Fovargue (Makerfield) (Lab)]

How will the Bill address the issue of companies going into liquidation and what happens to their creditors? We have all seen what happened with the Farepak scandal. Consumers do not understand the difference between part-payments, deposits and prepayments. Will that be clarified in the Bill?

--- Later in debate ---

[George Freeman]

Perhaps the hon. Lady could explain that to the hon. Gentleman. I pay tribute to her commitment to the subject. We heard all too little of such commitment during the 13 years of the Labour Government. Her commitment is all the more welcome for that.

I strongly welcome the Bill. It is deregulatory, pro-consumer and pro-business. After saying something about some of the measures in it, I will turn to one or two points it is appropriate to think about on Second Reading, such as the changing pace of technology and how it is changing the landscape, and the way in which the debt crisis and the model of broken public finances we inherited from the previous Government demand that we embrace a more radical model of consumer empowerment and citizenship to drive the recovery all hon. Members want.

The truth is that consumer law is currently not clear enough. It is often out of date, and it is confusing and incomplete. The Bill sets out a simple modern framework of consumer rights. Twelve pieces of legislation currently govern them, and I welcome the fact that there will now be only one.

[Yvonne Fovargue]

Will the hon. Gentleman give way?

[George Freeman]

I will not take interventions because of the instruction from Madam Deputy Speaker to keep moving.

[George Freeman]

Thank you, Madam Deputy Speaker, for that very helpful clarification. If I can finish my point, I will happily take an intervention.

I welcome the fact that there will be one simple Act to govern what has hitherto been covered by 12. I also welcome that, underpinning the Bill, are core consumer principles. People will have the right to get what they pay for; for goods and digital content to be fit for purpose; and for services to be provided with reasonable care and skill. We will also have the right to have faults in purchases put right free of charge, or to be provided with a refund or replacement. The reforms will enhance measures to protect consumers when appropriate.

I welcome the deregulation to reduce business burdens and costs. I also welcome the modernisation of the legal framework to ensure that consumer law keeps pace with technology. It clarifies the law when it is written in legal jargon and streamlines consumer rights, remedies and enforcement powers.

[Yvonne Fovargue]

The hon. Gentleman mentions the modernisation of consumer rights. Does he agree that it is time to change the bill of sale legislation, which was introduced in the 1800s, but which is now used to create log book loans—people give their log books for loans and can have their cars repossessed if they miss so much as one small payment? The legislation obviously does not intend to allow that, and it is time to modernise it.

[George Freeman]

The hon. Lady makes an interesting point, some of which is dealt with in the Bill. It will be interesting to see whether it is picked up in Committee.

Consumers spend more than 59 million hours a year dealing with goods and services problems, which costs an estimated £3 billion a year to the British economy. The Bill is deregulatory by nature, which means that consumers and businesses will find it easier to resolve problems with faulty goods and substandard services, and, for the first time, corrupted digital downloads. I noted with great interest that the executive director of Which?, Richard Lloyd, has said that the Bill

“brings consumer law into the 21st century, extending rights into digital content for the first time, and making it easier for people to understand their rights and challenge bad practice.”

The House will agree that that is a welcome step.

I welcome the fact that underpinning the Bill is the principle of fairness and helping customers when things go wrong, as they sometimes do. The measures will provide a firm foundation for empowering consumers, which will benefit businesses that treat consumers fairly.

Many businesses provide their customers with enhanced rights, but the truth is that even the best businesses still spend significant time and resources—more than they should have to spend—understanding the law and training their staff to apply it. The Bill will benefit businesses by reducing many of the burdens they face because of complicated consumer law. I particularly welcome the competition affairs tribunal.

My support for the Bill is genuine, but I wanted to mention one or two aspects of it that reveal, within our society, a view of consumer rights that is, at times, rather too narrow and that does not embrace broadly enough a concept of true consumer and citizen empowerment on the scale we need to drive a sustainable recovery and to reform how we deliver public services and put this country back on its feet. There are three specific areas in which the challenge of unleashing citizen and consumer power are urgent.

First, some markets—banking, utilities and telecoms—are holding back our recovery. Secondly, I am struck that the consumer rights conversation is framed around consumables, point-of-purchase rights and commercial rights in the commercial market. Many of those concepts could and should apply equally in the public sector and public services. Thirdly, it is also important to have active and empowered consumers in supply chains to drive them. That subject may not entertain all hon. Members, but I know that the Secretary of State feels particularly strongly about it.

In the bigger markets—banking, utilities and telecoms —we inherited from the previous Government an extraordinary concentration of power. One or two institutions had a very unhealthy predominance in each of those key markets, which are vital to the proper functioning of a free market economy. What we need as we try to recover from that toxic legacy of debt and dysfunctional markets is an insurgency of empowered consumer citizens to drive a new paradigm of choice, and to demand and insist that that which is available in so many fields of public life is available in banking, utilities and telecoms.

In banking, why is it still so difficult for bank customers to take their accounts to different banks? I would like to see consumer power, and consumer frustration with some banks, driving much more insurgency and the creation of new banks. First Direct appeared nearly 20 years ago, which was a stunning moment for our generation, who had never seen an online bank. We tapped the mouse and wondered whether it could be trusted and whether it would work. It turns out that First Direct was a stunning new entrant that catalysed all sorts of reforms in banking market. Why not have more now? Our banking sector is dominated by too few big banks, which were propped up by a very unhealthy burst of crony capitalism under the previous Government and shored up in the crisis that that incubated. We need to release customers to drive that insurgency in banking.

I would argue that the same is true with some of the utilities. Following privatisation in the ’80s, we saw those markets consolidate under the previous Government. For 13 years, we did not see or hear very much about that. We have inherited, particularly in energy, a small number of big companies that now pass on substantial global commodity price rises to customers, who have all too little real choice and power to drive across the market. To a lesser extent, the same is true for telecoms and broadband. We still see a very powerful monopoly provider in BT. Of course, other providers are able to operate on the railway tracks, but I do not think that in the telecoms market, given the extraordinary empowering impact of the underlying core technology, we have seen a parallel opening up of consumer power. Going the final mile to get broadband into deep rural areas to drive a rural renaissance, in my constituency and in East Anglia more generally, will require us to support consumers through some sort of voucher mechanism—I welcome the steps the Government are taking on this—to be more empowered to choose satellite, digital or any one of the insurgent broadband providers appearing on the market.

On public services, as important as the measures in the Bill are and as important as this subject is, they are still framed, as is the wider public debate on consumer rights, within the notion of point-of-purchase and consumerist trade descriptions legislation. It is principally concerned with the rights of the consumer at the point at which they buy a consumable. However, the concepts, ideas and rights enshrined in this useful Bill could and should go further. In fact, a number of the reforms that the Government are rightly unlocking in other areas of government will demand that they do. For example, why can patients in the health service, parents in the education system, or even pupils—possibly not young pupils, but sixth-form pupils—not have greater choice, transparency and consumer rights in the public services they receive? I would argue that a sixth former in a failing school who is receiving a bad education has just as many rights as the consumer of faulty electronic goods at a supermarket checkout. We need to extend this principle more broadly across public services.

Oral Answers to Questions

Yvonne Fovargue Excerpts

Tuesday 28th January 2014 Commons Chamber

[Nicky Morgan]

I hear the hon. Gentleman’s request. I am sure he is aware that in the 2010 Budget the Government reversed the previous Government’s 10% above-inflation rise on cider duties, and as he will know, the Treasury keeps all duties under review.

[Yvonne Fovargue (Makerfield) (Lab)]

10. What recent assessment he has made of the level of child poverty.

[The Economic Secretary to the Treasury (Nicky Morgan)]

Estimates of child poverty are published in the National Statistics “Households below average income” series. The Government remain committed to ending child poverty, but strongly believe that looking at relative income in isolation is not a helpful measure to track progress towards that.

[Yvonne Fovargue]

There are now more than 1,000 food banks throughout the country, and the Brick food bank in my constituency is forced to give out cold food packs and kettle packs to some working families who cannot afford to eat or heat. Will the Minister explain why the number of working families with children in relative poverty is increasing?

[Nicky Morgan]

I thank the hon. Lady for her question. As a Member of Parliament who has held a number of surgeries in my local food bank in Loughborough, I know that there is a variety of different reasons for people having to rely on food banks, and I am sure she will recognise that, under this Government, jobcentres are now able to direct people to food banks. Work remains the best way out of poverty, and the number of children living in workless households has fallen by more than 100,000 since the Government came to office.

Debt Advice (FCA Levy)

Yvonne Fovargue Excerpts

Tuesday 21st January 2014 Westminster Hall

[Yvonne Fovargue (Makerfield) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate the hon. Member for Worcester (Mr Walker) on securing this important debate.

The demand for free debt advice is rising, which is not surprising, given the cost of much short-term credit and the desperate financial situation that many people face due to unemployment, under-employment, rising prices and stagnant incomes. There are a great many people with problem debt. According to the MAS report, as we have heard, 8.8 million people—18% of the UK adult population—are over-indebted but, as we also hear, not all of them seek debt advice. In fact, the same report from MAS shows that only 17% of such people are actively seeking advice, so many people are not receiving the advice that they almost certainly need.

There are various reasons why people do not seek advice. I have talked about the “behind the clock” syndrome: when people are too frightened to open envelopes and just always put them behind the clock, until the clock drops off the mantelpiece. For some people, the reason is stigma—they cannot admit that they are in debt, as they see being in debt as a failure. However, for many others, the reason is simply a lack of signposting or the fact that if they have decided that they need debt advice, they will ring the local CAB or charity to ask for debt advice only quite often to be told that there is a six-week waiting list. After plucking up the courage to make the call, a great number of people are put off when they are told that they have to wait another six weeks. However, that may change soon, when payday loan advertising is required to provide information about sources of debt advice. People will then know where to go. We have to assume that more people will be seeking debt advice and that therefore more debt advice will be needed.

Of course, the extra debt advice must be paid for. It might be free for the client—rightly so—but it is not free to provide. In fact, it is expensive to provide such advice, especially face-to-face advice, although I make a plea now that face-to-face advice is available. That applies even to people who normally can deal with their problems. The worst debt case that I saw involved an accountant who just could not face the fact that she could not deal with her debts. She had to be seen face to face; she could not have dealt with the matter over the telephone. Face-to-face advice is expensive, but valuable.

It costs a lot to provide good advice, and it is right and proper that firms that contribute to debt problems—by lending at a high rate of interest, or by allowing borrowers to over-extend themselves—should contribute to the costs. Let us not forget that those firms benefit from their clients making affordable repayment plans with them.

A large part of free debt advice is funded by the levy on financial services firms, which is regulated by the FCA and administered by MAS. It provides about £35 million of grants to six delivery partners that give specialist face-to-face advice: Citizens Advice, Capitalise, Community Finance Solutions, the Bristol debt advice service, East Midlands Money Advice and the Greater Merseyside Money Advice Partnership. As a founder member of the Greater Merseyside Money Advice Partnership, I would like to say how valuable that funding was so that advice could be provided to people who did not qualify under the legal aid scheme, but had a high level of debt.

Payday lenders will be subject to the levy when they are fully authorised, which could be as early as the autumn. It is right that they come under the regulatory regime and pay the levy. Many of us feel that this would be the logical time to increase the overall amount of the levy paid by the industry to reflect the increasing numbers of firms regulated by the FCA.

As we heard from my hon. Friend the Member for Sheffield Central (Paul Blomfield), the Money Advice Service’s draft business plan for 2014-15 bizarrely proposed to keep spending on debt advice at the same level. A freeze in the levy implies that current firms’ contributions will be reduced, on the basis that more firms will be contributing to the same pot. If that is the case, this is truly a missed opportunity. We do not want to squeeze firms dry or punish them, but it is appropriate that the inclusion of payday lending firms should trigger more funding for debt advice.

I am not against the payday lending industry, but that is not to say that it does not contribute greatly to the financial problems of a great many people—it does, and the problems are increasing at an alarming rate. In the past four years, Citizens Advice has seen a tenfold increase in the proportion of clients receiving casework help with multiple debts, including payday loan debt. When I left the bureau in 2010, although I had seen plenty of people with home credit, I had never seen a client with a payday loan, so there has been a big explosion in the practice since then. In the first quarter of 2009-10, 1% of citizens advice bureaux casework clients had a payday loan, but in the same quarter of 2012-13, 10% had at least one payday loan, which represents huge growth.

It has been mentioned that StepChange has dealt with a sevenfold increase in payday loan debt problems in the past five years. That increase far outstrips the growth of the industry, which doubled during that period. The average payday loan debt is £1,665, which has risen a third in two years. The fact is that payday lenders cause disproportionate consumer detriment, so there is a strong case for saying, as the hon. Member for East Hampshire (Damian Hinds) and my hon. Friend have done, that their contribution to the levy should reflect that. There seems to be an assumption that the levy will reflect firms’ income and the level of debt that is written off. I share my hon. Friend’s concern that that will encourage payday lenders to pursue people even more aggressively. If the size of the levy does not reflect the detriment caused by the industry, payday lenders will be getting off far too lightly.

We must ensure that the overall levy pot is increased substantially when the payday loan firms are regulated by the FCA because free debt advice is vital and can make all the difference to people’s lives. A YouGov survey undertaken by the Money Advice Service showed that individuals with a manageable debt who sought debt advice were almost twice as likely to have their debt become manageable than those who had not sought advice. Supporting people with financial burdens can help in other ways, too, including with family relationships and mental health, and by sustaining employment.

Much can be done to help people in crisis, and we have an opportunity to ensure that payday loan firms accept at least some of the burden of the problems that they have helped to create. However, we cannot let the banks and credit companies off, either. They have always contributed to the levy for debt advice, and their contribution to the overall level of individual debt has not lessened. The addition of payday lenders to the pot should substantially increase the amount available for free debt advice, but should not be a way of reducing the contributions of existing payers. Banks and credit companies are still responsible for the majority of personal indebtedness and they should continue to pay at least as much as they do now.

--- Later in debate ---

[Cathy Jamieson]

Again, my hon. Friend makes a valuable point. In bringing my remarks to a conclusion, I want to reiterate some of the points that were made in the debate in the main Chamber last night. As she said, the FCA is a new organisation and it has been given a wide-ranging remit. It has consulted on a number of issues and new rules will be introduced for a range of things, but I would not like to see the specific issue of the levy slip through the net. My hon. Friend the Member for West Bromwich West referred to the recommendation for a levy in the Business, Innovation and Skills Committee report as the recommendation that has almost gone “under the radar”. Hopefully it is no longer “under the radar”; as I say, I certainly do not want it to slip through the net because of the FCA’s wide range of responsibilities.

The Minister, who has been listening intently, will have heard the view expressed in both debates on this subject—last night and today—that there is a genuine consensus across the House on this issue, and hopefully people from the FCA and MAS have heard that too. There may be other areas where we would disagree, but there has been a genuine consensus on this issue, which has built up during months, if not years, of campaigning by individuals who have been very committed to tackling this problem and by organisations that have been absolutely at the sharp end and see it every day. Those individuals and organisations have the ideas both to deal with the problems when they are identified and—crucially—to put in place preventive measures. There was some discussion of those measures last night, which include, for example, action on advertising, education and so on, so that we can try to prevent people getting into debt in the first place. However, if they do get into debt, the correct services must be there for them, not only to point them in a direction to get a bit of information but to help them to work their way out of debt, including making some of the lifestyle changes that are perhaps associated with getting out of debt.

[Yvonne Fovargue]

Does my hon. Friend agree that today is really a good time for this debate and that, if people want to see that the levy is not a dry subject and has an effect on individuals, they should know that this week Twitter has the hashtag #cablive, where the real-life experiences of people visiting CAB, and of the volunteers and paid staff who are crucial to helping them, are being demonstrated?

[Cathy Jamieson]

My hon. Friend makes a very important point because, as we discussed last night, this is of course debt awareness week. The comment that I made last night was that for some people this week may be a week of awareness but for others it is how they have to live their lives, to deal with debt problems. I am sure that the information that she has just given will encourage people to follow the process on Twitter and obtain more first-hand information from those who are using these services and those who are providing them.

I want to give the Minister further time to respond to the debate, and to allow for further interventions, because these debates give Back Benchers the opportunity to ask questions. First, however, can the Minister say whether he has already had any discussions with MAS and the FCA about this issue? Does he intend to look in more detail, over the coming months, at the structure and the nature of the levy and whether there could be any improvements there? Will he also consider an idea that we Opposition Members have been advancing, which is that, in addition to the provision of debt advice and money advice resulting from a levy on payday lenders, there should be a levy supporting credit union development and alternative low-cost providers? I hope that the Minister will answer those questions.

I thank all hon. Members who participated in the debate last night and, crucially, in this debate. I am sure that the debate is no longer under the radar. I hope that it will be out there more and that people will see that it is important in the wider scheme of things, as we try to tackle the problem.

--- Later in debate ---

[Sajid Javid]

Where there is emerging evidence of increased demand, I would expect MAS to respond. I am looking for the actual numbers, but off the top of my head, in 2012-13, the most recent financial year, MAS planned for 150,000 face-to-face debt advice sessions, but provided 158,000 sessions. The trend increased in the first six months of this financial year.

[Yvonne Fovargue]

The Minister’s concentration on the number of sessions is somewhat concerning because it is easy to provide a one-off session to someone with one debt. Providing for ongoing work with individuals with a high number of small debts, who continually have to write to creditors, is what costs time and requires expertise, which is why such organisations need paid staff with a high level of expertise. Such staff also help those people with money advice, because they identify the difference between priority debts and non-priority debts, and hopefully, following that advice, the individual will be more empowered to address their own problems.

[Sajid Javid]

I value what the hon. Lady says. She has considerable experience of this subject from before she came to the House and she makes a good point. If she would find it useful, as I certainly would, I would love to sit with her and learn more about what she says, which could help to inform decision making. If she is agreeable, that would be a good step forward.

In the interest of time, I will answer some of the questions that have been raised. Spending time on debt advice, when there is a demand for it, is clearly the right thing to do, and it is crucial to establish how debt advice can best be delivered to reach consumers. My hon. Friend the Member for Worcester is right that debt advice should be funded appropriately to meet demand and to provide services that directly benefit consumers. Last year, 94% of MAS’s £34.5 million budget for debt advice was spent on front-line delivery services. MAS aims to provide 150,000 debt advice sessions this year; last year, it exceeded the same target by 8,000.

The shadow Minister asked whether I have had direct discussions with MAS about this issue. I have not had specific discussions about the levy, as it would not be appropriate for me to get involved at this stage, given the independence we rightly give to the FCA in its oversight of MAS regarding the levy structure. She may be aware that the FCA is still deciding the best way to structure the levy on the consumer lending industry, and it will publish details on that shortly.

The hon. Lady asked me about MAS more generally, and I again point her to the review that will take place, as the Government have promised, during this Parliament. She also rightly asked about alternative sources of lending, which we discussed in yesterday’s debate. She mentioned credit unions, and of course the Government are committed to helping to promote them. We have a credit union expansion project under which there is £38 million of Government funding to help credit unions to modernise and to increase their customer base across the country by more than 1 million. We also recently made regulatory changes to the interest rates that credit unions can charge to ensure that they are not losing money each time they make a loan commitment. As I said in closing yesterday’s debate, I would like to see what further action the Government may take to promote that important sector.

I once again thank my hon. Friend for securing the debate. He and many others made important points, and I know that he in particular cares deeply about consumer detriment in regard to the payday loan sector. He has already played a significant role in the Government’s response to consumer detriment in that area. He mentioned that he recognises that the FCA is independent, and I am sure that the authority has heard the arguments today and will reflect on them. I assure him that I will also further reflect on the points he and other hon. Members have articulated so well.

Payday Loan Companies

Yvonne Fovargue Excerpts

Monday 20th January 2014 Commons Chamber

[Yvonne Fovargue (Makerfield) (Lab)]

I welcome the report from the Business, Innovation and Skills Committee. It is right to focus on payday lending, but there are other practices that we need to look at. The logbook loans, the rent-to-own model of BrightHouse and brokers such as Cash Lady all bear closer inspection, but at the moment we are looking at the payday loan industry. The industry has said that it recognises the need to clean up its business, and it introduced the good practice customer charter a year ago. However, were those just fine words, or has it cleaned up its business? Over the past year, Citizens Advice surveyed more than 4,000 people who had taken out a loan with payday lenders, and I am afraid that the results do not make encouraging reading. Like my hon. Friends, I do not trust the payday industry when it says that it is going for the database.

The real-time database must be mandatory to have any effect. If it is not, lenders can pop up all over the place without putting in the data. It is no good for lenders to say that they will give the FCA information on their products and services on a six-monthly basis, as has been said by the lenders who have promised to join the real-time database. That promise is simply not worth having. This is a fast-moving and—shall we say—innovative market, and the FCA must have the tools to work with the companies, examine their products and see how they are lending to people in as quick a time as they are changing their practices.

Let me give an example from Florida of how a real-time database can help. Loans are capped at $500. The regulator thought that a company had given two loans that breached the cap. It went in and the manager of the shop said, “Hands up, yes. It was a rogue employee. I am terribly sorry.” The regulator had the real-time data in enough detail to be able to say, “Actually, it was you, the manager of the shop, who approved this loan on two occasions.” That is the sort of data we need.

I am still uncomfortable with the idea of two roll-overs. The survey says that for 18% of such borrowers, the risks were never explained at all. In only 18% of cases were the risks of extending the loan explained to people. In 37% of cases were the costs clearly explained. Only 17% of people were treated sympathetically when they got into difficulties. In only 16% of cases were the charges and interest frozen. I have even more concerns now after receiving the same e-mail as my hon. Friend the Member for West Bromwich West (Mr Bailey) in which the company talked about repaying the loan in full, and then making another loan, which means they would get out of any cap. They would not be capped because it would be a new loan. The market is extremely fast-moving and slippery, and we must ensure that the regulations are worded in such a way that we can regulate on the basis of intention.

Default fees are a major problem for many people. Someone who borrowed £200 was charged £50 for a letter telling them that they had not paid. That is a completely ridiculous amount to charge for a letter. I have always said that payday loans are a perfectly sensible way to borrow in certain situations, but if someone cannot pay the loan, they can expect to be treated with some sympathy. I am more concerned that the cap on the total cost of credit will not include default fees. I have heard some companies say that it is the cost not of credit but of not paying, and that is how they will get around the cap, which is why there should be a cap on the default fee, and it should be an amount that the regulator says is reasonable. I am sure that a company can justify £50 for a letter, with time, office costs and so on, but it is not justifiable on a £200 loan. It means that vulnerable people who take out a loan, like 48% of the population, and are slightly over-optimistic about whether they can pay it back will continue to be exploited.

I am pleased that limiting continuous payment authority is under consideration. People need to have a letter before money goes out of their account, because I am not convinced that they understand that they are giving a supply of blank cheques to such lenders.

[Mr Love]

Is not the root cause of all these problems the lack of an affordability test on the credit that is given? Should not the FCA take action where that is not being done?

[Yvonne Fovargue]

I totally agree with my hon. Friend. As my hon. Friend the Member for West Bromwich West said, the affordability check should be sanctioned by the FCA. It should be approved, but, as we know, at the moment speed trumps affordability in most cases.

Let me return to the report by a group of northern housing associations and social landlords, which regularly surveys 100 tenants—this is the second time that it has surveyed the same people. It found that 55% of those surveyed said that they had “never” felt optimistic about their future in the past six months, and 21% said that they were “rarely” optimistic about the future. Those are horrifying statistics, and when we consider that 89% of those surveyed said that they were concerned about the level of debt they were in, it is not surprising. According to a survey by Citizens Advice, only 9% of those who are in hock to payday lenders have been referred to free debt advice. That means that 91% of those who should have been referred have not been.

This is probably a once-in-a-generation opportunity to influence and control these lenders and we need to make the most of it. We must also ensure that we cannot sit back after taking some action and say, “That’ll be the end of it.” As I have said, these people are extremely innovative. They will look at the rules and how they can get around them, so we need a regulator with the tools to act and the will to move with lenders to ensure that vulnerable people do not continue to be exploited.

Financial Services (Banking Reform) Bill

Yvonne Fovargue Excerpts

Wednesday 11th December 2013 Commons Chamber

[Mr Tyrie]

If the hon. Lady will forgive me, I will not, because I promised the Chair that I will speak for only three minutes. The hon. Lady will have an opportunity to make her own speech in a moment, and she has been a doughty campaigner on this subject for some time.

I want to speak briefly about part 5 of the Bill, which is the part that creates the payments regulator. This implements a recommendation the Treasury Committee made two years ago. It is worth explaining the origins of our recommendations.

The Payments Council—which is dominated by the banks and other firms involved in the payments system—decided in 2011 to abolish the cheque, without providing any explanation of how it would provide an adequate replacement. That was a profound mistake, and the Committee decided to investigate. The justification for that decision looked pretty threadbare and the abolition also carried a considerable consumer detriment both for charities and for a lot of people who use cheques. I did 20 radio and TV interviews on this subject after the report was published. I asked each of the interviewers whether they had a chequebook; 19 of them said they did and they very much wanted to keep it. I think that brings home the value of cheques. This does not affect only the elderly; quite a large group of people want to keep some kind of paper-based transaction system for the time being.

Under pressure the Payments Council did a U-turn and cheques have been retained. The Treasury Committee also looked at how such a crass decision could have been taken in the first place. We concluded that the explanation lay with the structure of the Payments Council itself. Frankly, it has been little more than a poodle of the industry, and it certainly could not reasonably claim to act on behalf of consumers. A reasonable case can be made, however, that it is a monopoly controller of a crucial banking service. We recommended that that responsibility for the payments system be brought within the ambit of regulation, and we gave an outline of how that should be achieved. Amendments 63 to 134 would implement that central recommendation of our report. It is now up to Parliament to ensure that the FCA is much more responsive to the needs of consumers and competition, on this and a good number of other issues, than was its predecessor. I warmly welcome this part of the Bill.

[Yvonne Fovargue (Makerfield) (Lab)]

I regard payday lending as a new industry. We have heard talk about how Labour did nothing for 13 years, but in the 23 years I worked in a citizens advice bureau—I left in 2010—I did not see people with payday loans. I think we saw our first person with a payday loan in 2010. It was always the home credit industry that people came to us about. The payday loan industry—and, in particular, the way in which it targets its market—is a new thing.

I wish to speak to amendment 155, which relates to the importance of a high-cost payday lender reporting in real time to a third party. The industry is really keen to embrace new technology when it suits it to do so. It has phone apps, and it advertises on television and online. New technology is meat and drink to it. However, it is less keen to operate a real-time database. It has had two years in which to do so voluntarily, and it still cannot come to an agreement on it.

Part of the reason for that could be that the industry is not keen on guidance. A lot of our payday lenders have American ownership. When I was at a conference recently, I was harassed by some of those American owners asking me what the rules were. I started to explain the guidance, but they were not interested. They just wanted to know about the rules. If something is not written down, they do not want to do it. They do not want to be the first, or just one of a few, to do something. For that reason, this provision needs to be mandated.

The present reporting system, involving a period of 30 to 60 days, is completely inadequate for a short-term, high-cost loan. A constituent who came to see me recently had taken out 14 payday loans in a week. Yes, that was irresponsible borrowing. I could see that he had been desperate, but it was also irresponsible. The system allowed him to do it. Had the lenders had a real-time database when they agreed to those loans, we could have got them for irresponsible lending. Their excuse, however, was that they did not know how many loans he had already taken out. The lack of a database gives them an excuse to lend irresponsibly, without penalties.

We also need to consider the responsible customers who pay back their loans on time and for whom taking out a payday loan is a perfectly rational decision. Perhaps their fridge is broken and needs to be replaced urgently, and they are expecting some money at the end of the month. Taking out such a loan in those circumstances could be more sensible than going to a company such as BrightHouse. Those responsible customers get no credit for paying back on time, however, because there is no database and because it is not mandatory to report their repayment record. In fact, on occasions, they are penalised for taking out a payday loan. We need a system that will help people to build up a record of creditworthiness, to allow them to get into the mainstream credit market.

As we have heard from my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), the present system can deter new entrants to the market. Companies tell me that they would like to get into the market, and that there is a gap for providers of loans between £500 and £1,500 taken over six months to a year at an interest rate of around 30%. However, the business risk is too great, because there would be no way of knowing whether their customers already had payday loans and when they had taken them out. Entering such a market would add to their business risk, and they also worry that raising their rates would involve a degree of reputational risk.

The Government should look again at this matter and consider mandating the introduction of a real-time database and reporting to a third party. That is important if we are to protect customers and lenders. It is also important if we are to help people to move into a credit stream with lower interest rates, and to help new entrants to move into the market, which we all agree is vital.

--- Later in debate ---

We all agree about the benefits of sharing information. The question is what we can do about it. The good news is that, because we agree, the Government have discussed the matter with the regulator, the FCA, which made a clear commitment that it plans to take action. It has already started down that course and is working with the industry on this. In the letter that I referred to at the start, the FCA said clearly that if the industry does not help to bring about the sharing of information sooner rather than later, it will not hesitate to make rules. It already has the powers to make such rules.

[Yvonne Fovargue]

Will the Minister therefore set a time scale for the FCA to give the industry to work towards voluntarily, which will be imposed on the industry if it does not meet it?

[Sajid Javid]

There is already the tightest possible time scale. In his letter today Martin Wheatley of the FCA says that the industry is already working on this. He states:

“If the industry cannot overcome the obstacles, and we are best placed to bring about data-sharing we will not hesitate to act.”

The chief executive of the FCA and the Government understand the importance of this. We can all agree on its importance and the need to take action quickly. I do not consider it necessary to pass any legislation as action is already being taken.

Autumn Statement

Yvonne Fovargue Excerpts

Thursday 5th December 2013 Commons Chamber

[Mr Osborne]

One of today’s most significant announcements, which will not necessarily be on the front pages tomorrow, was the increase in student numbers and the lifting of the cap on aspiration. That is a major structural improvement in the British economy. Britain has fewer graduates as a proportion of population than many other comparable countries, and it is a basic tenet of economic success that we should do more in this area. We are providing additional money for STEM subjects so that they are taught properly as well.

[Yvonne Fovargue (Makerfield) (Lab)]

Last year, The Brick, a Wigan borough charity, gave out 920 food parcels. This year to date, it has already given out 3,750, many of them to working families. Does the Chancellor agree with Citizens Advice that for many low-income families in work, the gain from the change in the personal allowance is swamped by the Government’s other changes to tax and benefits, causing them to turn to food banks for everyday necessities?

[Mr Osborne]

I praise the work that citizens advice bureaux do across the country, and I know that the hon. Lady was previously connected with them, but cutting income tax for the low-paid and taking them out of income tax is a real help, as is the freeze in fuel duty, rail fares and the like. As I say, in the end, the biggest thing we can do for this country is deal with our debts and get people into work. In her constituency, unemployment is down 26% and youth unemployment is down 40%. [Interruption.] Labour MPs shake their heads. I thought it used to be the party of full employment, but now it cannot welcome falls in unemployment.