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Malcolm Bruce: I am glad that the hon. Member for Rhondda (Chris Bryant) acknowledged the role of new clauses 4 and 5, to which I wish mainly to speak. I have had discussions with "debt on our doorstep", and the
 
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early part of new clause 2 is derived from my original amendment, which I have separated out, partly for the reasons stated. I do not think that we disagree on what we are trying to achieve; we are trying to work out a way to deliver a practical result. As the hon. Gentleman says, we want lower interest rates, and we want people to be able to take advantage of the best available interest rate, rather than the worst, which is often the case at the moment.

We have gained some useful insight and information from the Sunday Mirror campaign, in conjunction with "debt on our doorstep", which is to be commended, even if we cannot agree precisely with the three objectives. It seeks a cap on interest rates, and there may be a way of achieving that slightly different from the one in new clause 2; new clauses 4 and 5 might lead to that outcome or to an even better outcome. It also seeks to stop reckless lending, which I shall deal with when we debate amendment No. 21, and it seeks to improve education—a matter not specifically addressed here, but my new clauses are designed to give people more information, so that they can make informed decisions and be aware.

One of the main problems that people have is knowing what rate of interest they are paying, and what that means. I hope that new clause 4 will commend itself, at least in principle, to the Government and to the Office of Fair Trading. It would be hugely helpful if we had a mechanism to ensure the comparability of rates of interest and to establish the method by which interest is collected, and perhaps also if we required customers to be given a clear statement of the interest and how it would be incurred.

The Consumers Association has sent us a briefing with an example of two credit cards from different organisations, ostensibly offering different rates of interest, but charging exactly the same, because of the different way in which the interest is applied in terms of time and repayment terms. Even an intelligent and well-informed customer is in an impossible position when trying to calculate the real cost, so we need to inform, and the Office of Fair Trading should be helping that process. I commend new clause 4 as a means of suggesting how that might be done.

New clause 5 addresses the issue of excessive interest rates, and suggests a way in which we might achieve the results sought by the hon. Member for East Carmarthen and Dinefwr (Adam Price). The range of products and the way in which interest is charged are differential, so we need some mechanism that can be applied by product. We need to establish a standard way of calculating interest. We may also require a standard way to present interest, and to state product by product the range of interest rates in the market, in real terms, rather than through what the card provider wishes to say. For example, we need to be able to say, "The real rate of interest operating in the market for normal credit cards—apart from special offers of 0 per cent.—is between 8 per cent. and 28 per cent., and the median is about 16 per cent." By implication, therefore, anything outside that borders on the excessive.

Mr. Plaskitt: As the hon. Gentleman will know from our time in Committee, I am entirely in sympathy with what he seeks to achieve here, but does he accept that new clauses 4 and 5 focus on the calculation of interest,
 
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and even were we to achieve a common method of calculation throughout the industry—a common arithmetical standard for defining and calculating APR—that would solve only a small part of the total problem, because the issue is the cost of credit, not just the APR? Does he recall the evidence showing that even where cards have the same APR, based on the same method of calculation, the actual cost of credit can still vary by as much as 40 per cent.?

Malcolm Bruce: Of course I do. As is always the case, when as individual Members we table amendments to Bills, we try to focus on a point to help the Government, as the principal legislator, and the agencies that will operate the Bill to understand the will of Parliament and to devise methods to apply it. These new clauses have been tabled in that spirit. Some positive wind from the Government behind them would be helpful as a directive to the OFT, the ombudsman and others as to how they might go about applying the legislation.

During the Bill's passage to date, we have all said that we do not know how it will work in practice, and we will not know until is has been up and running for a while, but it is not unhelpful for the House to give some kind of steer as to our expectations. Matters such as charges, times at which interest rates are calculated and the point from which they date all need to be taken into account, but comparability is a point, because if people are presented with two identical rates of interest that cost something completely different, or they have no idea how to make comparisons, that might be why they do not switch from high-cost cards to low-cost cards. They will not be aware that it would make a difference—and it may not make a difference if the methods of calculation are different.

Mr. Drew: Does the hon. Gentleman agree that the state has the opportunity to be even more proactive? The hon. Member for East Carmarthen and Dinefwr (Adam Price) mentioned the role of credit unions. They could operate through every post office branch, and the Department for Work and Pensions—a major funder of the mechanism by which money reaches individuals through the financial system—could be encouraging the relationship to grow so that people could pay their money into credit unions and use them as a mechanism for borrowing, which would tremendously expand that movement, but also set a benchmark for the lower rates of interest that could be obtainable.

Malcolm Bruce: That is an eminently good suggestion, and I hope that the Post Office management and the DWP will take it up between them. Cash handling is what the Post Office is best at, and credit unions, which I strongly support—I have them in my constituency—are an important vehicle. The more they expand, the more they will fill some of the gaps. Even so, there are conditions attached to credit unions that leave some people outside, and that is why some people get into debt and difficulties. Later I will allude to the fact that for many people the biggest single problem is the accumulation of debt rather than the rate of interest.

New clause 5 shares the same objective as new clause 2, but seeks to achieve it in a rather different way. Basically, the OFT should do an analysis, and periodically publish bands of interest rates, so that
 
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people will be aware that if they are paying above that rate, they are at the wrong end of the market and should be able to find something lower. That is desirable. Secondly—a much more powerful weapon, particularly when the Bill is enacted and its provisions are up and running—we should identify interest rates that are outside those parameters and likely to be deemed to be falling on the wrong side of the unfairness test, effectively giving a strong warning to the industry and a clear guide to the customers that if a case is taken to the ombudsman or to court the consumer would probably win it and the credit provider would probably lose it. The publication of such information is likely to pull the interest rates back into the tramlines, simply because people will not want that.

I have tried to think through a mechanism that avoids some of the disadvantages of setting a maximum rate—one is that the maximum can become a minimum, which is the concern of the hon. Member for Rhondda—and some circumstances in which it might not be appropriate. The hon. Gentleman made a fair point. In many ways some rates of interest and some loans should never be provided, but although I will not say that that attitude is patronising, there is a difficulty in deciding where that level falls. There are people who openly, consciously and knowing exactly what they are doing, will sometimes accept high rates of interest for short terms because of a cash gap. That often includes poor people who have cash bumps, although sometimes quite well-off people are willing to do it, and ironically the Bill has allowed well-off people to do what the heck they please. We are obviously more concerned about the poorer people.

Adam Price: That is not an argument against the idea of a maximum rate; that is an argument against setting that maximum at too low a level. Clearly, one has to take account of the conditions in the marketplace and provide sufficient flexibility, but it is not an argument against the principle of a maximum rate.

2.30 pm

Malcolm Bruce: I think that it is, and that is a point of difference. I might mention the fact that I have grave reservations about the Financial Services Authority, the establishment of which I supported and was somewhat involved in. Far from protecting consumers, it is often used as cover for saying that things are all right. I take the point that the Sunday Mirror and the "debt on our doorstep" campaign have raised, which is that the maximum charge on plastic should be no more than 25 per cent. more than the base rate—so currently 30 per cent.—and that the maximum for doorstep lending should be 80 per cent.

The problem with that is that doorstep lending might be running at 40 per cent. or 50 per cent., which would make it much easier for people to say, "Well, 80 per cent. is okay." That is a genuine concern. We are not disagreeing about the outcome, but we are offering a different way of achieving the same result. Our proposal is more dynamic and flexible, and would mean that the OFT could give notice as the market developed and say what it regarded as excessive, at a given time and for a particular product.

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