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Chris Bryant: Several hon. Members have raised, to use the hon. Gentleman's words, "spiralling household debt". In fact, because interest rates are at their lowest level for the past 30 years, the proportion of household income that people spend on debt has fallen over the past four years, so they have been able to pay those bills.
Gregory Barker: The hon. Gentleman makes an interesting point, but he knows that a low rise in interest rates would have a disproportionately high effect on household budgets. If interest rates had increased by 2 per cent. 10 or 12 years ago, that increase would have been easily accommodated in household budgets. If interest rates were to rise by 2 per cent. now, however, it would have a huge effect on household budgets, because people budget for very low interest rates. A small movement in interest rates could have a devastating effect, which we would all see in our surgeries. There is no way to escape the fact that spiralling household debt in the UK is a worrying issue.
"Consumer debt is at a historical high, having broken the trillion pound mark, and now amounts to more than the whole external debt of Africa and South America combined . . . Contributing to this still-growing debt mountain is the fact that UK consumers now have a heady total of more than 66 million credit cards at their fingertipsa worrying five times more than the European average".
Mr. Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): Is the hon. Gentleman honest enough to admit that his prescription means that if the Conservative party were ever to gain power, it would freeze all new mortgages and no one would be able to borrow money to buy a house?
Gregory Barker: I am afraid that that is a frivolous intervention. The Bill has nothing to do with the Conservativesit is a Government Bill that we are supporting and trying to improve. Making frivolous points like that does not advance the argument very far.
US credit consumers receive notably better protection than their British counterparts. On the other side of the Atlantic, consumers have the Truth in Lending Act, the
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Equal Credit Opportunity Act and the protection of the Unfair Debt Collection Act, ensuring that the consumer credit playing field is significantly fairer to all participants. The Fair Credit Billing Act has also done much to enable errors associated with credit arrangements to be investigated and swiftly put right.
Examining the relationship from the perspective of the lender in the USA, there is a clearly defined duty requiring lenders to "know their customer" by recognising the consumer's credit needs and requirements and matching them with appropriate credit services. I was struck by the moving story told by the right hon. Member for Dumbarton (Mr. McFall). Had the lending institution that he mentioned known its customers, one would hope that it would not have provided credit in a way that produced such a great deal of misery for his constituents.
Some US states have progressed even further, demanding that legal action be taken against credit card companies who have, through irresponsible methods of lending, trapped customers into a spiral of escalating debt. While America has responded to match an evolving credit landscape with improvements and developments in legislation, the British consumer has been left with the Consumer Credit Act 1974legislation that simply does not reflect the debt reality of Britain today.
Such concerns about the problem of indebtedness were recently acknowledged by the Bank of England in its financial stability review. It notes in its studies of the potential long-term financial outlook for this nation the risks that personal debt may pose to the macro-economic stability of this nation, and urges that the seriousness of that statistic be appreciated. Although I am cautious about how far the Bill will be able to resolve many of the issues of personal indebtedness, I remain supportive of the steps that it will take in moving towards making that a more realistic possibility.
I have been lobbiedas, I am sure, have many hon. Membersby several interest groups and people in my constituency. I was particularly struck by the e-mail that I received from Mr. Ian Clark on behalf of the diocese of Chichester, which covers Sussex and includes my constituency. He says:
"On behalf of the Diocese of Chichester, the church applauds the improvements that the Bill proposes to the regulation of consumer credit in this countrythe current legislation is over 30 years old and clearly in need of significant improvement."
"The UK has the highest levels of consumer debt in Europerelative to incomes it is higher even than the well-known debt problems in the USA. Our churches have to deal on a daily basis with the results of crippling debt".
My churches believe that the Bill needs to be strengthened even further in a few key areas to more adequately protect low-income borrowers from high-cost credit and predatory practices. They note that the consumer credit industry has been investigated by the OFT and recently referred to the Competition Commission. They also note that the Consumers' Association's recent Which? report highlighted many of the unfair practices"
"To give the power for the Government to introduce maximum levels of interest and charges if this proves necessary in futureat the moment many poor debtors suffer scandalously high marginal APR percentages and unreasonable . . . charges".
"To improve the OFT's regulatory licensing powers over lenders and intermediariessee clause 38, including fines that are reasonable in light of the severity of offencesimilar to the FSA model, not limited to £50,000".
Another suggested amendment proposes that clause 15 should require lenders to provide better and more prominent information to borrowers in line with the recommendation of the Treasury Committee. The clause does not currently require lenders to provide comprehensive and clear information.The diocese also suggests that the use of time orders by the courts should be encouraged through clarifying sections 129, 130 and 136 of the 1974 Act.
We cannot escape the fact that legislation is needed to keep pace with developments in the consumer credit industry. We need to do more to protect the most vulnerable in society from aggressively marketed and unscrupulous lenders. The picture of spiralling household debt that I have described appears throughout the nation, affecting all regions and reflected in the entire spectrum of society. The problems associated with consumer credit have created an untenable financial position that requires urgent attention. Legislation must meet the realities of the consumer credit market.
The Bill is welcome but far from perfect and requires proper scrutiny and improvement in Committee. However, I support the provisions that are aimed at creating a more favourable balance for the consumer, establishing a competitive environment, removing rogue traders while inspiring consumer confidence in the credit market and ensuring a more promising credit landscape in the future.
Ross Cranston (Dudley, North) (Lab): I welcome the Bill, which must be viewed in the wider context of "Promoting Financial Inclusion", which the Treasury published as part of the pre-Budget report, and the strategy on over-indebtedness. Both documents emphasised the role that credit unions can play. However, it is high time for a review. I accept and welcome the fact that we have a vibrant credit industry but there are casualties to whom we must give attention.
First, I welcome the information provisions. Parts of the industry, such as the Finance and Leasing Association, have criticised, for example, the warnings,
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the notice of arrears and the notice and information provisions on default. However, I believe that they constitute a proportionate response.
Secondly, I welcome the changes in the licensing provisions. From the publication of the first edition of Cranston's "Consumers and the Law" in 1979, I have criticised those provisions on the basis that they were the nuclear option. One had to withdraw the licence, which was not a practical step. The Bill contains a graduated response in the detailed restrictions that can be imposed and the civil penalties. However, I accept that the civil penalty of £50,000 should be alterable by statutory instrument.
The licensing provisions are important in the context of shark lending. The citizens advice bureau in Dudley has given me a list of the intimidating behaviour of some rogue lenders that includes bullying, telephoning debtors at work and at relatives' houses, telephoning at all hours of the day and night, claiming that goods can be repossessed when they cannot because the debtor has made payments beyond the limit that the legislation prescribes, and saying that clients are liable for the debts of others such as close relations.
However, the problem is not confined to what I have just described. As my right hon. Friend the Member for Dumbarton (Mr. McFall) pointed out, the big banks also have a responsibility. Let me give one example from my constituency. A bank lent a 71-year-old lady, who is on pension credit, £1,700. Her monthly income is just under £490 and she has to pay £418 a month. The result is penury.
Much depends on enforcement. Tomorrow, I shall visit the west midlands anti-loan shark pilot, which the Department of Trade and Industry set up. I commend that initiative. I have already been in correspondence with Tony Quigley and his team. They have identified one lender in the west midlands region that charges an annual percentage rate of between 8,000 and 10,000 per cent., with hundreds of clients. The team has already done good work in getting what are in effect injunctions against some lenders. They say that their hand would be strengthened if they had a power of arrest for illegal moneylending on the basis that if the perpetrators were arrested, clients and victims would come forward.
Thirdly, I want to deal with the unfairness provisions. The hon. Member for Eddisbury (Mr. O'Brien) made a good point when he said that we need more definition by the time the Bill reaches Committee. The old moneylending provision involving the presumptive 48 per cent. unfair interest rate is no longer appropriate. Unfairness itself is not an objectionable test; it operates in the context of the Unfair Terms in Consumer Contracts Regulations 1999. The regulations, however, contain a grey list that identifies what might be unfair. There is a good argument for saying that unfairness should be specified to a greater extent; otherwise, as my right hon. Friend the Member for Leeds, West (Mr. Battle) said, every district judge in the country could come up with a different decision, resulting in cases going up to the Court of Appeal. The Government should specify the criteria in that respect.
I take the point in the briefing from Citizens Advice that the restriction of the application of this provision where judgment has been secured is objectionable. The reason is quite simple. Many such judgments are
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reached by default; the consumer has had no say in the matter and the judgments are simply rubber-stamped. There needs to be a mechanism whereby those judgments can be challenged.
I very much welcome the use of the financial ombudsman; this is a real example of alternative dispute resolution. There are other provisions in the Bill which I also welcome. There are also omissions, as some of my hon. Friends have pointed out. One point that has not been mentioned is the section 75 issue, which involves the question whether consumer credit payments abroad are covered. The academic view has always been that they are, but a High Court judge said in a recent decision that they are not. This is a good opportunity to clarify that matter.
Commentators such as Professor Sir Roy Goode have pointed out a number of defects in the current legislation. They are technical defects, and I think that I had better write to my hon. Friend the Minister about them.
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