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Angela Eagle: The hon. Gentleman raises a point that increasingly worries many of us as we see the development of cash machines that charge people to access their money, especially in poorer areas where they do not have the option of getting it in other ways. Does he realise that the Treasury Committee is soon to consider that, and hopes to come up with some views to pass on to the Government about what can be done about this serious and increasing problem?
Mr. Campbell: I thank the hon. Lady. I noticed that the Committee made that announcement just after I tabled the EDM; I do not know whether the two things were connected. I heartily recommend that hon. Members sign early-day motion 93, and if the Treasury Committee advocates strong, positive and decisive action in respect of the financial institutions, many of which make hundreds of millions of pounds, in order to assist people in deprived areas, it will be doing a service.
Mr. James Plaskitt (Warwick and Leamington) (Lab): I am pleased to follow the hon. Member for East Londonderry (Mr. Campbell) and I endorse the points that he made towards the end of his contribution about charging machines. I shall speak about that subject later.
I welcome the measures announced in the Queen's Speech that relate to economic affairs, especially the Government's commitment to introduce a consumer credit Bill. I endorse the comments of other hon. Members, including my right hon. Friend the Member for Dumbarton (Mr. McFall), who chairs the Select Committee on the Treasury. We hope that the Bill will implement many of our Committee's recommendations on consumer credit. I also agree with my right hon. Friend that the matter is urgent. I hope that the measure will be introduced soon so that Parliament can begin work on it.
The Bill is important because existing consumer credit laws are approximately 30 years old. As the Government rightly stated in the White Paper, "Fair, Clear and Competitive", which was published last year, the need to overhaul consumer credit legislation has become pressing. I am pleased that Conservative and Liberal Democrat Members have so far made broadly positive noises about the Bill. I hope that there will be broad consensus for our reform of consumer credit legislation.
The need for reform is underlined by the dramatic change in the world of credit since existing credit laws and regulations were written. When the initial legislation was introduced, I believe that only one credit card was in circulation, whereas there are now more than 500. The range of credit facilities is phenomenally greater. The complexity of the marketplace that offers credit bears no resemblance to the simple world that existed when the laws were introduced. Access to many different forms of credit is far easier. It is therefore vital to bring the laws that govern credit up to date .
Indebtedness is another reason for dealing with credit. The subject has already surfaced in the debate and attention has focused on the fact that total
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household indebtedness in the UK has passed the £1 trillion mark. The right hon. Member for West Dorset (Mr. Letwin) commented on that. There is no need to get over-excited about the £1 trillion figure. Although it is a new high, it reflects 10 years of growth in the economy and the rise in disposable income. Before becoming too concerned, it is important to stress the balancing figure in the other column, which covers total household assets and wealth. That figure is £6 trillion. The relationship between one and six is reasonably stable and does not suggest an overall problem of indebtedness in the economy. However, in specific sectors and groups of society, there are problems. Some are due to weaknesses in consumer credit legislation. We need to deal with that.
Mr. Richard Allan (Sheffield, Hallam) (LD): Does the hon. Gentleman agree that it would be helpful to try to clarify responsibility for credit card fraud, especially card-not-present fraud, before it becomes a major crisis? People are not sure who is responsible once fraud has happened, and disputes between the financial institutions are increasing.
Mr. Plaskitt: The hon. Gentleman is right, and I am right to suggest that there is a growing consensus about such issues. I am happy to endorse his comments. Later, I shall consider other fraud issues, which are also the product of the market's evolution in recent years and underline the need to tackle the matter.
Many more people have access to credit as provision has grown so fast in recent decades. There are important imperfections in the credit market, and that is another reason to review the legislation. Choice and competition in the credit market and product innovation are all fineno one would have a problem with that. They drive the market and make it so successful. However, with those things have come other consequences that Parliament needs to address. There is far more complication and a great deal of consumer confusion in this market, as well as opaqueness in terms of the consumer trying to understand what the product is or what will be the consequences of taking a particular form of credit.
That creates confusion for the average customermany of us would include ourselves in that categorybut things become far worse for the vulnerable consumer and move on from confusion to potential entrapment in a downward spiral of debt, which can lead to tragic personal consequences, as we have seen in recent years. Reform of the law is needed to realign credit legislation with the real nature of today's credit market.
Credit is very important to the economy, as it aids personal flexibility, helps us all in managing our personal finances and creates more opportunity than there would be without it, but we can improve the working of the credit market and support all its benefits while eradicating some of its excesses and bad practices, which we in the Treasury Committee have been studying and becoming increasingly concerned about.
The new Bill, when we have it in front of us, must achieve a number of important balancing acts. Yes, we need a genuinely competitive market in consumer credit,
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but to have it we need informed consumers. Yes, we want fair competition to be promoted and encouraged, but that requires an end to misleading promotions. Yes, it is important to achieve transparency in trading in credit, but that requires an end to the obfuscation that distorts so much of the market. We must have fair trading in credit and between credit providers and credit consumers. That means an end to many of the practices that constitute irresponsible lending.
To focus on an important issue, the market falls well short of being genuinely transparent. The credit terms that come with most credit cards are printed in minuscule type and written in the most opaque language that it is possible to envisage. It is very hard for the average consumer to understandif they can even see them to read themthe terms of the contract that they have entered into.
Also, it is impossible to compute the cost of credit. One thing that we on the Treasury Committee discovered in considering the issue is that an average consumer who takes two, three or four credit cards from different issuers, all with the same annual percentage rate, assumes that the cash cost of credit on those cards is the same. It is not. Hidden away in the small print are so many other variables that a person can do the same transaction over the same period on those four cards, all at the same APR, and the cash cost of the credit might vary by as much as 40 per cent. It is very difficult for consumers to keep up with all that. There are even different ways of calculating APR. That, too, adds to the lack of transparency.
There is some progress in the industryI hope that some of it is due to the work that we have done in the Treasury Committeeas it is moving towards a standardised APR, which I welcome. The industry is also introducing summary boxes, which summarise the key information on the credit, the offers and the statement. That is movement in the right direction, but it has been rather grudging and there is still a lot further for the industry to go.
I see those as down-payments on the complete reform that is needed. The summary boxes are not yet standardised, so it is still difficult to compare providers. The penalty charges that attach to the cards are still not clear and they represent a large part of the spiralling cost incurred by those whose debt goes out of control.
The point that we must try to reach when we reform the consumer credit legislation is that the full extent of the deal into which the consumer has entered must be on the table before the consumer signs up. The problem at the moment is that far too much is discovered after entering into the contract. That is the key change that we need to make if we are really to achieve proper transparency in the industry.
I hope that the Bill gives us a chance to achieve fair trading in the industry. We have found far too many examples of where that does not exist. I want to stress one, and one only: the unsolicited issuing of credit card cheques. These are being sent repeatedly to 5 million households in Britain, all of them unsolicited. They come with glossy accompanying promotional literature. Many of the banks that issue those credit card cheques encourage people, as they send them, to spend them on holidays, cars, gifts for other people, or credit transfers to yet another credit card. There is always room, it
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seems, to print on the cheques themselves and the promotional literature all the things that they can be spent on, but there never seems to be room to print the APR, the actual credit cost, what will happen if one only makes minimum payments and so on. There can only be one justification from the industry's point of viewit is an inducement to the consumer to use up more and more of their credit limit.
I have put the question to many providers of credit card cheques when they have appeared before our Committee: what is the justification for unsolicited issuing of credit card cheques? Answers come back along the following lines: credit card cheques provide convenience to consumers; they cover instances of payment when one cannot pay with a credit card or bank cheque; or they are helpful for balance transfers. All those are reasons for having credit card cheques as part of the credit business, but not one of them is a reason for the unsolicited issuing of credit card cheques. They are delivered repeatedly only because providers hope that they will land on the doormat on the same day as a glossy holiday brochure, and consumers will simply find it irresistible, put two and two together, and end up paying six for the privilege. It is simply an irresponsible extension of credit.
There is quite a simple answer. The industry can make the argument for the existence of credit card chequesI have no problem with thatbut the consumer should opt in to them, not have to face repeated issuing of them when they are not requested and not used. In the White Paper, "Fair, Clear and Competitive", to which I referred earlier, it is suggested that the unsolicited issuing of credit card cheques "could" or "may" be one of the instances of irresponsible lending. I would suggest that it "is" an irresponsible form of lending. There is no justification for it, and I hope that we will use the opportunity of the forthcoming Bill to end the practice of the unsolicited issuing of credit card cheques.
I also hope that when we consider the Bill in more detail, we can deal with the excessive interest rate problem in relation to store cardscredit cards issued by retailers. I can describe such interest rates as excessive, but it is not my description. When the Select Committee had the bosses of the four main banks in front of us, we asked them what they thought constituted an excessive rate of interest. The head of Barclays was unwilling to define it, but the others couldthey put it in the region of 20 per cent. or more, against the backdrop of current base rates. Most of the interest rates charged by store cards are well in excess of that, so we can describe them as excessivethey are condemned as excessive by the industry itself, not just by consumer associations.
There are 21 million store cards in circulation, £5 billion a year is spent on them, 14 million adults have them, but they all charge excessive interest rates. I hope that we will have an opportunity, in consideration of the Bill, to do something about that, and to act on conclusions already reached by the Office of Fair Trading, whose report stated that
I want to pick up on the observations made by the hon. Member for East Londonderry about charging automated teller machines. That issue will also be examined by the Committee, and it is another area in which it is important to review regulations on money and credit. There is an explosive growth of charging ATMs. There are 20,000 of them around the United Kingdom, and they grew by 40 per cent. last year. Of the 5,600 new cash machines installed across the UK last year, 63 per cent. were charging machines. We are nearing the point at which there will be more charging machines than free machines, because some banks are selling their networks to charging operators. This means that we are paying for our own money.
The industry argues that it is all about convenience. It says that in remote areas, if there were no charging machine there would be no machine. That is not a convincing argument. Many charging machines are in areas that could not possibly be described as "convenience" locations. In Leicester square, for instance, there is a Travelex charging machine, which does not warn people that they will have to pay but tells them that they will have to do so only after they have completed five screen actions. On the other side of the square, there are free cash machines. That constitutes a total lack of transparency, and it is a further reason for my hope that the consumer credit Bill will deliver a transparent industry.
There is an urgent need for Parliament to consider this issue. We need an opportunity to lend a hand to the millions of consumers in Britain who are wrestling with the complex, obscure and frequently misleading world of credit.
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