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Michael Fabricant: I have considerable sympathy with many of the hon. Gentleman's points, but does he agree with me on two? First, greater clarity is needed in the definition of interest rates. New clause 2(1) refers to the Office of Fair Trading publishing,
but which interest rates? There are different ways of calculating annual percentage rates, so that interest rate X offered by one credit card company is not the same as interest rate X offered by another, because of the small print on the APR. [Hon. Members: "New clause 4."] But new clause 4 was not tabled by the hon. Gentleman to whom I am addressing my question.
If I may, Madam Deputy Speaker, I wish to raise a second point, which is that I am a little unsure about what the hon. Gentleman means by financial—
Madam Deputy Speaker: Order. Interventions are to be brief.
Adam Price: I assume that the hon. Gentleman was about to ask me what I mean by financial inclusion and exclusion. The latter is the lack of equitable access to financial services, particularly among lower-income groups. Because of that key problem, such people are vulnerable to exploitation by the less worthy, less mainstream financial services companies, which prey on the poor.
Michael Fabricant: That is the definition that I thought the hon. Gentleman was using, but in that case I do not quite follow his argument. In Germany, there is a real problem of people living in the rust belts, which lie mainly in eastern Germany, being unable to borrow money from Sparkassen because they do not meet the criteria, and therefore suffering social exclusion. Far be it from me to take the Minister's side of the argument, but does not that show that sometimes people who desperately need to access money quickly can only borrow at excessive interest rates, because the lower interest rates offered by institutions such as Sparkassen are not available—
Madam Deputy Speaker:
Order. Again, the hon. Gentleman is making a speech, not an intervention.
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Adam Price: I understand the hon. Gentleman's point, although I am not an expert on the recent experience of Sparkassen. Their creation following the second world war was an important contribution to social regeneration in West Germany, but there may be problems.
We are discussing the type of exorbitant interest rates charged on, for example, pay-day loans, whereby people get loans covering a few days in advance of pay day on which the APR charged can be about 1,000 per cent. My question is whether the unfairness test, which will ultimately rely on the courts, will be sufficient to tackle such problems. The new clause is designed to provide an additional safeguard—a policy lever that has been used successfully in other European countries and throughout most of the industrialised world.
Mr. David Drew (Stroud) (Lab/Co-op): I think that the clause is a good one and I hope that the Government will give it serious consideration. However, if I have a criticism of the hon. Gentleman, it is that he is being rather too sanguine about the orthodox end of the market. We all know what the Treasury Committee has been discovering about the lack of transparency surrounding credit cards. The whole industry is opaque; it is no wonder that operators at the other end of the market try to get away with charging excessive interest rates.
Adam Price: The hon. Gentleman has a point. The "debt on our doorstep" campaign has recently brought cases against Alliance & Leicester and some other mainstream providers. Examination of charges and default payments, for example, reveals points on which such providers can be criticised. The interest rate ceilings set in some European countries would affect some store cards, whose APR can be as high as 35 per cent. I suspect that if the enabling power that I propose was given to the Secretary of State, the initial focus would be on the door-to-door lending market, where there is an urgent need for scrutiny, but I agree that some of the mainstream providers have used the flexibility afforded them by current legislation.
I am interested in seeing whether the Minister will go a little further and acknowledge some of the difficulties with the original Policis report, about which there are genuine and widely held concerns. I want further research to be done, because that would go a long way toward meeting some of the demands of the campaigning organisations.
Chris Bryant
: I am grateful to the hon. Member for East Carmarthen and Dinefwr (Adam Price) for tabling the new clause, because the subject was not expressly debated in Committee and there is considerable concern about it in my constituency. Some lenders, credit card companies and personal loan providers deliberately target areas with large pockets of poverty. People in those areas want ready access to finance for short or long periods, but they cannot use the services provided by more orthodox lenders, and must rely on those who will lend only at high rates of interest. Such lenders operate in particular in areas where a large proportion of the population own their own homes, so they know that they can turn an unsecured loan into a secured loan, and have some certainty about whether they can get the
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money back from poor communities. The Government are right to address the issue, as we need to tackle financial exclusion and the profound cynicism in some parts of the financial services market.
Mr. Drew: I agree entirely that the worst aspect of this is the targeting not just of individuals but of whole areas so that resources are sucked out. However, does my hon. Friend accept that the problem is the way in which the financial regime blacklists certain areas, as that means that the other lenders know exactly where people are desperate to get money? That is discriminatory, and deserves careful examination.
Chris Bryant: My hon. Friend is right. The system that provides City money for companies engaged in such marketing in those communities should be inspected. Some of the standards of honesty that those companies use when they are trying to raise money in the City fall short of what we in the House aspire to.
I am wholly sympathetic to the reasoning behind the new clause tabled by the hon. Member for East Carmarthen and Dinefwr. Indeed, I am attracted to the notion of a maximum interest rate, which prima facie is a good idea, and is in the interests of the poorest communities in the land. A couple of arguments have been evinced against a maximum interest rate, but I did not find them convincing. My hon. Friend the Minister argued that we have a mature financial services and consumer credit industry, which is true to some extent, as it has been around for a long time and is highly competitive. However, I would argue that as a result there is an intense scrabble for customers, and the better business practices to which we all want the financial services industry to aspire sometimes fall by the wayside. Occasionally, the maturity of the market is counter-productive.
Mr. Sutcliffe: The Bill aspires to achieve responsible lending and borrowing as well as transparency. We need to make sure that where the industry does not behave properly, suitable regulatory powers are available to the Office of Fair Trading. We also want to make sure that consumers are fully aware of the detail of the relevant agreements. That is the basis of my belief that we have a mature market.
Chris Bryant: I agree with the Minister. Individuals should be aware of the requirements of the deal that they are entering into and comprehend them fully. Even if lenders include an official statement about the risk of people losing their home if they do not keep up their interest payments, many consumers are desperate for money and are under pressure, especially in the run-up to Christmas and the holiday period, so they find it difficult to understand the deal that they have entered into. The old principle of caveat emptor—buyer beware—is important, but this is an area in which the market alone will not provide.
Michael Fabricant:
The hon. Gentleman has made an important point. Is it not the case that in a sophisticated and mature financial market the respectable side of the market recognises that it is not a good investment to make loans to some people? Consequently, the portion of the population highlighted by the hon. Member for
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East Carmarthen and Dinefwr (Adam Price) can be exploited. He gave the example of an APR of 1,000 per cent. or more, and such interest rates can be levied because the mature and sophistimicated market does not sell its products to those people, who cannot access it.
2.15 pm
Chris Bryant: I think that the "sophistimicated" market is a Bushism—but I am sure that everyone in the Chamber agrees that exploitation needs to be tackled. We want to try to find the right means to prevent exploitation, whether of individuals or of communities, including the Rhondda, which I represent.
I do not accept the argument that a maximum interest rate would make it impossible for poor people to gain access to financial services. Some loans should not be made, because people cannot afford them. I accept that most financial services organisations want to ensure that they do not lend money to people who cannot afford a loan, because they might not get the money back. However, if that results in unsecured loans being turned into loans secured on people's homes, we should put a stop to that corrupt exploitation.
I find some aspects of new clause 2 problematic. The new concept of widespread consumer detriment proposed by the hon. Member for East Carmarthen and Dinefwr may well undermine the provisions at the heart of the Bill to tackle unfair relationships. Courts may decide to strike down an agreement that someone has entered into for all sorts of reasons, but they cannot do so because the interest rate is too high, as there is provision to tackle that elsewhere in the Bill. That is detrimental to the cause of preventing exploitation, so I hope that the Minister will give some further explanation. He is waggling his head as he did in Committee—but perhaps he will do it later. High or excessive interest rates and the charges that often ensue for late payment are exploitative in themselves, and should be considered by the court as reasons for characterising an agreement entered into by a consumer as an unfair relationship and striking it down. If that is the case, we should not support the new clause, as it would contradict the purposes that we are trying to achieve.
I fear that if the Government used the powers afforded by the new clause and set a maximum interest rate, that rate might be considered acceptable and could lead to a steady sliding up of interest rates. I hope, however, that the Bill will achieve a steady sliding down of interest rates. Once a court strikes down an agreement because the interest rate is excessive and the relationship is unfair, I am sure that there will be a dramatic change in higher interest rates. My contribution has not been as short as I intended, which is often the case. I wholeheartedly support the aims of new clauses 2 and 4, but I am not sure that they would help us to achieve the aims that we are trying to achieve.
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