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Andrew Selous (South-West Bedfordshire) (Con): We should all agree, in a debate in which we are making considerable criticisms of the lending industry, that responsible lending is important to all our constituents in helping them to navigate the financial pressures that we all face at various times in our lives. It is ridiculously easy, however, for our constituents to borrow wholly irresponsibly at a time when debt has spiralled and savings have plummeted. Total personal debt in the UK now stands at £1 trillion. I am not a mathematician, but it might be helpful to the mathematically unfamiliar if I say that a trillion is a 1 with 12 noughts after it. Unsecured personal debt has doubled since 1997. The director of policy advice at Citizens Advice reported on 30 July 2004 that, over the past six years, there had been a 44 per cent. increase in the number of people coming into CABs with debt problems. This is not debt that people can cope with easily. We know from Citizens Advice, which everyone has praised today, that this is a widespread national problem.
I would like to give credit to the two citizens advice bureaux in my constituency, and to praise the excellent work that they do in Dunstable and Leighton Buzzard. I am grateful for the funding that they receive from South Bedfordshire district council, which in some cases helps them to employ additional financial advisers. I am also delighted that a credit union is about to be set up in the Downside area of Dunstable. I would like to see more credit unions in operation because they have an excellent record of operating in many areas of our constituencies that other financial institutions do not reach.
David Taylor:
Will the hon. Gentleman rejoice with me at the item in this week's Co-operative News which records that the 500th member of the south-west
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Durham credit union is one Anthony Blair? Does not this demonstrate that credit unions appeal to all sections of society, not just the less well-off or the left of centre?
Andrew Selous: The hon. Gentleman is absolutely right. I believe that the President of the United States of America is also a member of a credit union. I intend to join the credit union set up recently in my constituency. He is right—they are for everyone, and more power to their elbow. They are excellent institutions.
We have heard horrendous stories of suicides, which have hit the papers, of people who have got into untenable debt and have seen no way out. I am struck, however, by the fact that in 70 per cent. of marriage breakdowns, financial problems are cited as one of the principal reasons. We should all be conscious of that. It is excellent that both Relate and community family trusts, which do excellent preventive work in terms of relationship support, are providing money advice to couples. Obviously, in all cases, prevention is better than cure.
I was interested to hear that one of the Acts in the United States of America is called Truth in Lending, as that should sum up what the Consumer Credit Bill is about—honesty, transparency, people knowing what they are getting themselves into and not having nasty shocks and surprises, and the industry acting sensibly and responsibly at all times. Above all, that means people knowing the interest rates that they will pay before they take out a loan, how long they will pay the loan for, and having that data well in advance.
Clearly, data sharing is important. Companies that lend need to know what other loans people have. It is ridiculous that at the moment, if people shop around a number of different credit lending companies to get the best value loan, and then they do not take up the offer, that can cause their credit rating to deteriorate, and they are regarded as a worse credit risk purely for acting sensibly and trying to shop around for the best possible loan. Penalising someone who has tried to act responsibly is completely the wrong result, and I hope that practice is stopped.
It is imperative that the lending industry operates under the general proviso of really knowing its customers. That is what it is all about. I want clause 15 to bring about a situation in which, if a lender knowingly lends irresponsibly, that loan will not be enforceable in the courts. It is a little disappointing that we are uncertain about that at the moment. We will have to see how the courts pronounce on such cases, as it is an important principle. If we can establish that knowingly irresponsible lending will not be enforceable, that, probably above all else, will stop the lending industry acting in such a manner.
There need to be clearer "wealth warnings" to people who are about to take out loans. For example, in relation to those advertisements that say, "Consolidate all your debts, roll them all up into one loan and you will be better off," a lot of people do not realise that they are moving from unsecured loans to secured loans, so their home could be in danger. There have been instances of people losing their home through not realising that, which is very regrettable and should not happen.
Payment protection insurance is a scam and a racket. Under the terms on which it is provided by many credit lenders, it is extremely bad value for money, and can
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very often be provided considerably more cheaply elsewhere. People who borrow should be able to cancel payment protection insurance separately, and it should not be a condition that it is wound up with their loan. People should be offered proper value for money.
It is appalling that someone with a £10,000 loan should be twice as likely to have his or her credit limit increased automatically, as if the full amount owed were paid each month. The credit card companies like people who manage to make only the minimum repayments and they like people with large debts, because they know they will make more money out of those people. The industry will have to do something about the irresponsible increasing of credit limits.
As I said earlier in an intervention, there should be much clearer warnings about credit card cheques, which attract an interest charge the moment they are received by the credit card companies. That is not made clear in the literature. It should be highlighted in large print in statements when they are sent out.
I am sure we all agree that prevention is better than cure. Mention has been made today of proper financial education. I welcome the work done by citizens advice bureaux and schools, but I think that money education should be tied closely to significant life events that affect people's finances—losing one's job, for instance, or wanting to send one's child to university, which has become considerably more expensive under this Government. Other examples are a relationship break-up, the birth of a child and even a change of school, as was mentioned earlier.
I think it would be best for financial information to be provided at the time of such major events in a clear, simple form. It could be provided in a number of places: clear, simple leaflets could be provided in surgeries, hospitals, jobcentres and libraries. I cannot envisage people queuing for a course on financial literacy on a wet Saturday afternoon, but I can envisage them picking up a small, sensible, easy-to-understand leaflet while they wait to see a doctor, at a jobcentre or at the local library. Such advice must be independent, so that our constituents can trust it.
I realise that a number of others wish to speak, so I will end my speech.
4.57 pm
Mr. Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): I, too, am conscious of the number of Members who wish to speak, so I will confine myself to just a few remarks. Like all who have spoken I welcome the Bill, and I echo the tributes paid to organisations such as the citizens advice bureaux, not just for the work that they do in my constituency and many others but for the effective way in which they, and Citizens Advice Scotland, have lobbied for the legislation and helped to create consensus.
First, I want to comment on the unfairness test which replaces the extortionate credit test. I agreed with what was said by my hon. and learned Friend the Member for Dudley, North (Ross Cranston) and the hon. Member for Gordon (Malcolm Bruce) about the need for a more specific definition of the unfairness test. However, I was struck by the comment of Citizens Advice in its briefing that one of the benefits of the proposal is that there is no attempt to define "unfair" in a way that would restrict
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its ordinary popular sense. If any attempt is made to define the test in Committee, it should not lead to any reduction in the benefits that it could bring.
It is in the nature of the credit industry that as one door is shut another is opened, and a new wheeze is dreamt up. Credit card cheques are an example. I do not think that they existed 10 years ago, and I find it hard to believe that they serve any social purpose. Too precise a definition might prevent us from changing our responses in accordance with the changing practices of lenders; that will be an important point to pursue in Committee.
I will be interested to hear from the Minister, if he has time, about the thinking behind the Government's decision not to include in the Bill details about the unfairness criteria. I hope that he can at least confirm today that the new unfairness test will be very broad. He has already said that the threshold will be lower than that for the extortionate credit test, and I certainly hope that the unfairness test will include considerations such as the content of advertising, the way in which, and the type of people at whom, credit is marketed, and the circumstances in which credit is advertised and marketed. The test will of course also have to take into account the individual circumstances of a particular borrower. What might be unfair for one borrower might not be so for another, given their particular experience or capacity in the financial sector.
I shall also briefly refer to time orders and their applicability to Scotland; indeed, this is an important issue for the UK as a whole. The general view is that the time order provision has not been used as much as it could have been, even in England, but there certainly is a particular problem in Scotland. Although this is a reserved matter, it has implications for the way in which the courts—and, in due course, alternative dispute resolution—will operate in Scotland, so it is an important issue to sort out.
I am surprised that the Bill does not make it clear that lay representation will be available in the Scottish courts for those who wish to act on behalf of people seeking time orders. In the initial consultation paper on tackling loan sharks, which was published some three years ago, the Government said that they
"to make it clear that lay representation should be allowed when applications for Time Orders are made".
The summary of responses to that document pointed out that
in Scotland. I am not sure why this aspect of the provisions affecting Scotland got lost somewhere en route. I hope that it was not because someone decided that things were getting awfully complex, and that we should perhaps leave it out at this stage, rather than getting caught up between the levels of Scottish and UK government.
This is an important issue that needs to be addressed, particularly in Scotland. I doubt whether a Sewel motion is required, but in case one is, I should point out that one of the beauties of devolution and of having a unicameral Scottish Parliament is that measures can be put through very quickly. I am sure that Westminster
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and Scotland between them could get a Sewel motion through in the next couple of weeks, given the broad support among all the parties for this important measure.
I want to say something about the limit on the penalty that can be imposed on credit businesses that breach the Office of Fair Trading requirements. I agree that the £50,000 limit is much too low. Some of the organisations whose activities need to be stamped out are not mere back-street lenders; they are big organisations, for which £50,000 is nothing. There is no reason, therefore, for having a limit on the civil penalty that can be imposed. If I have read the proposals correctly—I might not have done so—the penalty can be imposed only if a requirement imposed by the OFT is broken. However, where a particular activity of a credit business is deemed to be unfair and has affected hundreds or thousands of consumers, but it then stops that activity, it will be impossible to impose a civil penalty. The OFT's power to impose a penalty will be restricted in a way that, broadly speaking, that of the Financial Services Authority is not. This issue needs to be looked at.
Finally, I hope that this debate sends out a clear message to our financial services industry. There has been great pressure for such legislation because in selling credit, too many lenders, including some of the biggest names in the industry, have engaged in practices that were frankly outrageous. I shall not go into them today, but we know of the examples to which many Members have referred. However, I am pleased to say that many people in the financial services industry have cleaned up their act and made a clear commitment to improve the way in which they sell their products.
What we need is not just legislation but a change in attitude, so that whenever a new product is dreamed up or new financial wheezes are brought from the drawing boards, the first consideration should not be how to make the maximum profit. That, of course, is part of the industry, and I want to see a successful financial services industry because thousands of jobs in my constituency depend on it. At the same time as thinking about the profits to be made, however, the financial services industry should also consider whether it is being fair to the consumer and the borrower. That is the sort of thinking that should apply when new products are being put on the market, and it is one reason why I am attracted to a broad definition of the unfairness test. If people thought that they could be caught by a broadening of that test, there would be less chance of a bad product going on the market in the first place. Overall, this is a good Bill in every sense, and I pay tribute to the constructive way in which it has been introduced to Parliament.
5.6 pm
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