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I support the Bill, and most of my speech will be devoted to explaining why I believe it is necessary. It is very much in line with the Government's policy of
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reducing the number of children in poverty. As has been pointed out several times today, the poorest section of the community is ripped off most by extortionate interest rates and hidden charges. The section of the community that can least afford it pays the highest penalty and suffers the most. The Bill attempts to tackle that.
Which? and the Consumers Association also welcome the Bill, but want it to go a bit further. The association has expressed concern about annual percentage rates, which a number of Members have mentioned, and about irresponsible lending. How can lenders be responsible if they do not take into account the full credit history of those to whom they lend, and do not know what debts and other problems they may already have?
which have also been mentioned today. My right hon. Friend the Member for Dumbarton (Mr. McFall) mentioned charges for late payment and the exceeding of credit limits, which tend to take no account of whether the limit has been exceeded by only £1, or for only one day. Such charges can be totally unfair, and they are much more prevalent than we realise. Last year one in four people with credit cards incurred a penalty charge at some stage, and Which? estimates that the credit card companies took £427 million as a result. That is a major problem.
As my hon. Friend the Member for Rhondda (Chris Bryant) pointed out, every time we open our post at home, we are bombarded with letters offering us money, and even cheques. On the television and in the press, such organisations are constantly throwing money at people. But they do so indiscriminately, throwing it at those who cannot afford to borrow it, and without taking into account their particular situation.
Mention has been made of the NACAB, to which I shall refer extensively. Burnley District Citizens Advice Service provides a very good debt service. There is only one problem with it: there is too big a queue of people waiting to see its advisers. So that the advisers can do their job properly, analyse people's circumstances and give good advice, such people unfortunately have to wait, yet they might desperately need such information, and quickly. None the less, the Burnley advice centre does its bestindeed, it does an excellent job.
According to the NACAB report "In too Deep", which was published in May 2003, in the five years to 2003, CABs reported a 24 per cent. increase in the number of new debt inquiries and were dealing with more than 1 million a year. Over the same period, inquiries about consumer credit debt rose by 47 per cent. According to a NACAB survey of those seeking advice about debt problems, about three quarters of all clients were on incomes lower than the national average. Almost a third said that they were claiming income support or income-related jobseeker's allowance, and 13 per cent. said that their wages were being topped up by tax credits. Those percentages are much higher than those for the population as a whole. These findings suggest that people on low incomes and benefits find it difficult to budget without accessing credit, and that similarly, they struggle to repay such debts. The
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Government are committed to trying to help such peoplethe poorest section of the communitywho are currently at greatest risk.
A Lancashire CAB told the "In too Deep" report that one of its lone parent clients in receipt of income support owed more than £12,000 to four creditors. Bankruptcy had been discussed with the client, but she could not afford to raise the £250 deposit fee for the Insolvency Service. The CAB negotiated token repayments of £1 a month to her creditors, but it would have taken her more than 250 years to repay the total debt. The result was unpleasant calls from debt collection agencies and a great deal of distress to the client.
A 2001 survey of CAB debt clients showed that each had an average of five and a half debts, totalling more than £10,700 per household. The debt-to-income ratio showed that the average debt was nearly 14 times the level of income. Of course, total debt includes elements such as council tax debts and money owed to catalogues; I am not suggesting that it consists entirely of credit card debt.
The provision of credit to low-income consumers is on the increase, and given that their circumstances increase the need for such credit, it can prove very costly. A CAB in the north-west told those who compiled a NACAB report of December 2000, entitled "Daylight Robbery", of a new practice used by a mail order company. It appointed company representatives to take orders and collect payments, adding an interest charge of 90.5 per cent. APR for that "extra service" in doing so. In one case, a CAB client who purchased a suite through the catalogue in question paid £15 a week for 40 weeks. She thought that that constituted full settlement, but was then told that she still owed what was a very substantial interest charge.
High-cost products can also be a problem. In the "Daylight Robbery" report, a Lancashire CAB tells of a client who had replacement windows installed at a cost of £5,150. After paying the deposit of £1,150, she was persuaded by the company in question to take out a loan, which it arranged. The agreement required her to pay £96.48 a month over 10 years. That comes to £11,577.60. The client was unaware that the loan would be over such a long period, and after three years she realised that she could get a better deal elsewhere and asked for a settlement figure. The figure quoted was £6,323£1,173 more than she had borrowed in the first instance.
Although there are cooling-off periods, the reality is very different, especially when high-pressure selling techniques are applied to people in their own homes when they are already under pressure. Clients have their problems aired on TV and elsewhere, and there is no doubt about the reality of the problem.
It is not only high interest rates that can trap someone in debt. People with credit cards with low credit limits can find that the addition of administration charges can soon make a debt spiral out of control. The CAB report refers to a Lancashire client who had a debt on his credit card of just £200. He fell ill, had to stop work and claimed incapacity benefit. The credit card company would not accept the offer of repayment that the client made, and continued to add interest and late payment charges. By the time the credit card company finally agreed to accept his offer and suspend the interest, the
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late payment charges had increased the £200 debt on the card by 150 per cent. That is the nonsense that many people face.
Finally, I want to deal with consolidations. They are advertised on the television and Carole Vorderman sometimes comes on the screen in the mornings. People know her and her expertise in mathematics from her role in "Countdown", so they listen and believe that she offers a way forward. They often do not realise what the small print saysthat taking a consolidation loan might mean securing it with their homes. If people cannot pay in the first instance, and then they cannot pay for the new consolidated loan either, they put their homes at risk as well. A consolidation may be appropriate in some cases, but not in others. People must think carefully before opting for one.
I spoke to a credit card company at the weekend and heard about offers to transfer cards to zero rate and so on. While I was talking, the woman asked me whether I realised that 0 per cent. up to April is not as good as 3.9 per cent. for the lifetime of the loan. Depending on when and how one wants to pay, that may well be true, but people do not look carefully enough at the conditions.
I could say a lot more about such issues, but I shall finish by citing a letter from a constituent that I received in November. I have written to the two companies named in the correspondence, but I will not name them here today. I wrote on 10 December, but I have not yet received the courtesy of a response of any kind. I shall give them a little bit longer. My constituent wrote:
"A few years ago I took credit with the . . . company so I could have some repairs done to my car. The original amount was for around £470. I got into some financial trouble after I separated from my wife and handed all my debts to . . . debt management company, who have been handling my debts for about four years".
He now owes £1,174more than he started off with, after paying for several years. The company has not, as I said, had the courtesy to reply to me. It is that type of rip-off exercise that I hope the Bill will deal with.
I have great respect for the Minister, who has admitted that the Bill will not tackle all the problems. That is true, and we need the Government to take further action. Which? said that it would be good to go further, and I agree. I hope that the Minister will not soften the Bill in Committee. If anything, he should make it tougher, which would do a great service to the many people in this country who are being ripped off.
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