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Another key figure is the amount of disposable income spent on servicing debt. There are scare stories about debt, but 80 per cent. of it is for mortgages, which make people asset-rich. There has been a 50 per cent. increase in household wealth since 1997.
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Mr. McFall: I accept that. We must keep the matter in perspective. The problem, as the Governor of the Bank of England stated when he appeared before the Select Committee on one occasion, is that 10 per cent. of the lending is unsecured so 10 per cent. of the population could be affected. The FSA recently stated that many millions of people still had problems dealing with their debt. Although we are not complacent, we recognise that the country is in the black but that quite a number of people at the lower end could be facing a real problem. They could be tiptoeing into disaster.
The financial services industry is a big industry. It is competitive and profitable, and I welcome that. However, the industry needs to adopt a more acute social dimension. The top nine banks collectively made £17 billion in pre-tax profits in 2004, but with the financial services industry recently being voted the second worst industry by consumers, there is an urgent need to rebuild consumer confidence. That must be a major priority for 2005.
For those tiptoeing into disaster, we need data sharing. We need to bring those who are over-indebted and those who are financially excluded into the wider financial sector network. I was sent information by a debt charity which looked into the situation and concluded that extreme debt is a growing problem. It examined three aspectsfirst, individuals with debts of more than £100,000. There were 815 clients in that group. The average debt was £114,000. Whereas 75 per cent. of people in that group had their own house and assets, 25 per cent. lived in a rented property and had no financial back-up. The question must be asked how such a situation could come about, where 815 people have average debts of £114,000.
The second aspect was the ratio of debt to monthly income. In the sad case of Dereck Rawson, who left a suicide note in May citing debt as the reason for taking his life, he had run up debts of £97,822 and owned 16 credit cards, but he had a monthly income of £1,473. That is a ratio of debt to monthly income of 66:1. How could anyone possibly pay off a debt of £97,000 with an income of £1,473 a month? There is a need for the industry to get its act together. There is a need for data sharing to ensure that industry good practice is not tarnished by the bad news resulting from such tragic cases. A 66:1 ratio of debt to monthly income is totally unacceptable. Urgent action is required to prevent it.
The third aspect that the charity considered was people with more than 16 credit cards. There were 178 clients in that category. The mean number of cards was 20 and the highest number that an individual had was 48. One can imagine a person with 48 credit cards making the minimum repayment of one or two pounds every month and getting himself or herself more and more into debt as the months go by. Surely we must have a sane system whereby an assessment is made of an individual's commitments so that we can prevent tragic cases from happening. That is in the interests of both the consumer and the industry. We will work with the Department of Trade and Industry and others to achieve that. I do not minimise the difficulties, but for the sake of a functioning, competitive market that is fair to customers we must achieve that aim.
Over-indebtedness and financial exclusion are important issues. The Government response to the Treasury Committee states that 3 million households
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hold no bank accounts. As we know from our constituents, individuals and households who are excluded from the financial community are also excluded socially.
The Treasury Committee is currently undertaking a short inquiry into cash machine charges and financial inclusion, and the Government have a lot of work to do in that particular area. We have taken evidence from the citizens advice bureau in Speke, Liverpool. Speke has a population of 10,000, but a free cash machine is not available and the cash machines all charge £1.50. The Government want to bring people into the financial network and advise people on low incomes not to withdraw all their cash at one time. If people go to their local convenience store to withdraw small amounts of cash, however, 20 to 25 per cent. of their benefits, or perhaps even more, may be taken away, so we must examine that issue.
The Treasury Committee has not drawn any conclusions and we are still taking evidence. According to the LINK website, the most affluent area in my constituency, Helensburgh, has no cash machines with charges, but other areas of Dumbarton and the Vale of Leven contain cash machines with charges. There were no cash machines with charges until 1999, when LINK changed its proposals as a consequence of the Cruickshank report.
The Minister and his colleagues must address this public policy issue: do we want to continue with a free cash machine network, where it is available, and have charging for conveniencewe would need to define "convenience"or will we move inexorably to a cash charging environment? The Treasury Committee has not drawn any conclusions, but it is a big issue if we are examining financial inclusion and fairness.
The best advocates in the financial services industry realise that they must do something positive to ensure that trust and confidence are restored. One company wrote to me the other day to say that introducing fair and transparent practices, stopping the use of misleading terms and conditions, making fees and charges reasonable rather than their being an excuse to make excess profits, and ensuring that products are easy to understand and involve simple processes would be a start.
The financial services industry is important for this country's economic well-being, but customers are important too. Let us get the right balance between customers and the financial services industry so that we can look forward to a prosperous future in which customers are treated fairly and the aspirations of individuals and families in this country can be achieved.
Malcolm Bruce (Gordon) (LD):
There has been a general welcome for the Bill, which was long trailed. I think that the Government will admit that it is, in a sense, overduethey have promised it for a long time and it has finally arrived. So far, the debate has addressed a range of issues, demonstrating the concern
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on both sides of the House about the current credit regime and the need for legislative reform. It is not clear whether the Bill deals with a lot of the issues raised in the debate, and we will need answers to many questions on Second Reading and in Committee to clarify exactly what the Bill is designed to achieve.
Mr. Sutcliffe: That is a crucial point. Many of the issues raised by my right hon. Friend the Member for Dumbarton (Mr. McFall) fall within the remit of Departments other than the Treasury. In my contribution, I said that we must examine the whole matter, including what is being done by the FSA and Treasury Ministers. No one has said that the Bill will catch everything.
Malcolm Bruce: I am grateful to the Minister. I am not saying that that was the claim; all I am saying is that a Bill called the Consumer Credit Bill will give people expectations that the legislation may not be able to fulfil. It is in the Government's interest to address that and it is important that we clarify what it is designed to achieve.
As the hon. Member for Eddisbury (Mr. O'Brien) suggested, some of the definitions in the Bill are less than extensive. Its full effectiveness can be determined only once it is enacted and tested by experience. The same applies to compliance costs.
The Government propose to extend the existing licensing scheme and ombudsman service, in particular by introducing powers to deal with unfair relationships. That is probably the right approach, but time will tell whether it meets consumer expectations. It is 30 years since the previous relevant Act, and it is interesting to observe that at that time borrowing on credit cards, for example, amounted to £32 million, while now the sum stands at £49 billion. That is a huge change. I will be interested to discover the extent to which the Minister believes that the Bill will deal with unfair relationships in relation to credit card abuse.
I pay tribute to those in citizens advice bureaux and other advice centres who wrestle daily with the problems of people struggling with debt, and help to resolve their problems by giving them practical advice on how to deal with financial institutions and on how to reschedule, or sort out their personal debt in other ways. The citizens advice bureau that most directly covers my constituency is in Peterhead, although Aberdeen deals with some cases. We have smaller information and advice centres in rural communities, which are not involved with or funded by the CAB, including GRAINthe Gordon rural area information networkthe Turriff advice centre and the Keith advice centre. They operate on very small budgets, and many of the people who work for them are very low paid and do it out of a desire to help rather than for the money, or in some cases work as unpaid volunteers. Despite their small budgets, those centres deal with thousands of cases a year and provide real practical help. Perhaps this comment is directed more at the Scottish Executive than at the Minister's Department, but more recognition and funding should be diverted to such smaller organisations, especially when compared with the substantial amount of money that goes to the CAB. That said, I do not in any way undermine the value of the CAB work.
Several Labour Members have commented on the desire for a maximum interest rate. The Minister has made his position clear, and I broadly agree with it.
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I understand why the "debt on our doorstep" campaign and others want a specific reference to that to be included in the Bill. However, having listened to both sides of the argument, it seems to me that many of the small-value credit arrangements are effectively dependent on fixed-price charging for debt collection, which is beneficial to both parties because it is clearly understood. That could fall foul of a maximum interest rate. Having said that, several Members referred to cases in which much more unscrupulous mechanisms have been used whereby people are encouraged to roll over debt on increasing rates of interest with additional charges, to the point where by no stretch of the imagination can they be described as anything other than extortionate.
From what the Minister saidand the hon. Member for Eddisbury agreed with himwe may presume, hope and believe that the unfairness test will catch that practice. The difficulty for Members who want a maximum interest rate specified in the Bill is that that presumption is not provable until it has been tested. I fear that what might happen is that organisations such as the Catholic Fund for Overseas Development will find that they cannot safely operate the kind of arrangement that has applied in the past and which they honestly believe to be mutually beneficial. Such organisations would withdraw from the market and only the criminal fraternity would take on the loans. By definition, its members are outside the reach of any Bill because they do not operate under the law. There is a debate to held about that but we need to take that serious point on board. I have no doubt that an amendment will be tabled and I have no problem with that. However, I hope that those hon. Members who are concerned will ultimately be satisfied that, if the Bill is enacted in its present form, it will quickly establish a test case, which will cover the examples that they have mentioned. I would be surprised and disappointed if the extortionate rates that have been charged in such examples could pass a fairness test. I therefore agree with the Government's approach.
The Committee that the right hon. Member for Dumbarton (Mr. McFall) chairs has been active on the issue in the past year or two. My hon. Friend the Member for North Norfolk (Norman Lamb), who serves on the Committee, has also been active and kept me apprised of much of the Committee's activity. [Interruption.] Indeed, my hon. Friend has kept the press apprised of that, too. That is a wise course of action for a good Member of Parliament with a small majority. I pay tribute to him for his constructive behaviour as a member of the Committee.
Focus has been placed on the practices of what might be described as the mainstream of creditthe role of the high street banks, the main financial services companies such as MBNA in Chester and so on. Nobody suggests that they are sharks or rogue traders, but they work in a lucrative market and deal with millions of people, and they are adopting practices that at least raise eyebrows. I am interested in the extent to which the Bill can tackle those practices. It is important for the Government to clarify that and to explain how practices that the Bill does not tackle could be identified. There is an expectation and a desire for the industry to put its house in order, if necessary through legislative pressure.
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We all accept that there is a dynamic in credit products that we do not want to suppress. We do not want to frame legislation so restrictively that it discourages new products. The hon. Member for Rhondda (Chris Bryant) made an interesting point about unsolicited cheques, pressure to take out loans and 0 per cent. introductions. Of course, he raised legitimate concerns but some people can use such products effectively and to considerable advantage. We need to find a mechanism that warns off and protects people for whom such products are inappropriate, without killing them off for those who can benefit from them. There is a constructive policy debate to be held about how to achieve that.
Although it is clear that financial companies have induced people to take up inappropriate creditthe wrong credit instrument or a credit that they cannot afford to repayit is comforting that some complain that they have lost £1 billion a year through the astuteness of those who have managed to use 0 per cent. introductory fees, roll them over and not pay any interest on anything for a considerable time. Of course, we all ultimately pay for that, but it is important that the process of regulation is about trying to help people to make informed decisions and prevent them from being pressured into making inappropriate decisions.
The Government could help us to adopt two or three instruments that might assist in the process. The transparency of interest rates has already been discussed. I accept the point about financial literacy but it is a basic requirement of credit to know what the interest rate is. I therefore concur with the right hon. Member for Dumbarton and the Consumers Association that one standard method of presenting interest rates is desirable and, preferably, some broad agreed procedure about how they are applied. One method of calculating them is certainly desirable so that people can make a direct comparison and know that they are comparing like with like, not apples with pears.
I would go further and say that it might be helpful for the Bank of England, the FSA or some other appropriate body to publish an annual average or a range of figures so that people can make a comparison. Perhaps there should also be a requirement that this information should be drawn to people's attention when interest rates are being offered. Along with the 0 per cent. rate, and the introduction of the bonus interest rates, there are credit card interest rates as low as 7 or 8 per cent., yet some store card rates are well over 30 per cent. With the rate of inflation at 2 per cent. and the Bank of England interest rate at 5 per cent., those represent very high rates of interest, and the differences between the available rates are substantial. People ought to be aware of the ways in which they might be able to get a cheaper rate.
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