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Malcolm Bruce:
The purpose of the amendment is to address the accumulation of credit, putting some responsibility on providers of credit to ensure that people who are given it have the capacity to repay. Members will understand why such an amendment is
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justified, even if this one is not in quite the right format. The Minister has referred to the maturity, development and sophistication of the UK credit market, but we have reached the point at which people no longer have to ask for credit. It arrives on our doorsteps, sometimes in piles. We receive offers for credit cards with substantial limits, cheques and bank loan offers. We have all received them. Open the envelopes, and we find that a £7,500 cheque can be ours today to send to a bank. No security is required, and seductive letters suggest we might want to go to Hawaii and do this or that. All we have to do is bank the cheque.
Most of us probably have several credit cards, and if we look at the limits on all of them we might be surprised to find how much access we have to instant credit. For most of us, I hope, it is more than we would wish or intend to use, but some people get themselves into a complete mess. It seems disreputable, to say the least, for large financial institutions—we are talking here about the biggest, most reputable brand names in the business—to offer credit without making any attempt to find out what other lines of credit we have, whether we have a mortgage, what security we can offer and what our circumstances are. They are relying simply on the fact that the majority of people will act responsibly and in their own interests. The majority of people do manage, and do whatever they will do—but some people will take full advantage of all the credit made available, then find it impossible to manage their debt.
Michael Fabricant: I am very interested in the amendment and have great sympathy with what the hon. Gentleman is saying. However, paragraphs (a) and (b) talk about the obligations of lenders to find out the total indebtedness of the person to whom they are lending. To what degree can one put responsibility on the lender when it may be that the person borrowing the money will not disclose all the borrowing he or she has? A person may need the money desperately, and if that happens is the hon. Gentleman saying that the lender should be held responsible?
3.15 pm
Malcolm Bruce: I hope not. I hope that the amendment is worded to address that. It says that the debtor
My concern is that, in some cases, the lenders make no attempt to find out circumstances. I am certainly not trying to cover the situation in which someone has wilfully misrepresented their circumstances to the lender, or saying that that should place an obligation or blame on the lender. I want to cover the case where the lender has not taken reasonable and responsible steps to ensure that the person to whom they are offering credit has the capacity to repay.
There are two reasons for that. The first is a basic duty of care, an obligation or a responsibility to ascertain that people have that capacity. Secondly, there is an extraordinary contradiction here with the way in which financial institutions usually work. If we want a
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mortgage or to take a bank loan for a specific purpose, we have to fill in forms and forms and forms, often involving declaring things we hardly remember to calculate, such as our council tax payment, golf club subscription, salary, wife's salary or donations received from great-aunt Matilda or whatever. We have to give all that before institutions consider whether to offer a loan for a car or a house or whatever it may be.
Yet on to our doormats drop credit cards such as the one that fell on mine with a £7,500 limit if I just phoned the number so that I could use it immediately. The issuer had no idea what my circumstances were or what credit I had. Citizens advice bureaux and many newspapers have had cases; indeed, this is a rich seam for many tabloids because they can find cases of people in hardship every day.
Mr. Lazarowicz: No matter what the ultimate fate of the amendment, there is great sympathy across the House for what the hon. Gentleman is saying. When letters arrive on our doormat, however, we can at least ignore them. Does he accept that an even more difficult and unacceptable situation arises for the consumer when some credit card issuers harass people at such places as airports, just when they are going off on holiday? Does he agree that it is even more outrageous effectively to invite people to take on an extra debt of thousands of pounds at the very time when they may be most vulnerable to such appeals? Is that not an example of the kind of practice that must stop? Should not the lenders who engage in such practices take that message away from both this debate and the general debate we have been having on such subjects?
Malcolm Bruce: I understand that point: whenever I go to Edinburgh airport I am accosted, and I am frequently accosted at Aberdeen airport, too. Usually, I am accosted by people on behalf of the best-known brand names: Shell promotes at Edinburgh, as does the Royal Bank of Scotland.
I must balance what I am saying by adding that consumers, of course, have some responsibility and should have a sense of care for themselves. One could say that many people who get into difficulties do so knowingly, but they will say, "The money was available and I could not resist the temptation or did not see how fast I was building up debt." We can say we have no sympathy for those people and ask why they do it. In reality, they could not have done it if the credit was not made so easily available. What I am trying to say is that we need to show the financial institutions that we expect them to take some responsibility by not putting that degree of temptation in the way of people who will get themselves into difficulty.
In a particular case, covered, I think, in the Sunday Mirror, someone managed to take out £125,000 on 11 credit cards and in six loans while on a salary of £16,800. The person in question says that he was stupid and brought the situation on himself He describes how the heavy mob was effectively sent in. He says that the debt
It is awful when people get into such a situation. I am not suggesting that people should not be educated at school about personal finance and responsibility, which
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is a point made by the Daily Mirror and the "debt on our doorstep" campaign. Frankly, however, part of the education process should be undertaken by the providers of credit.
First, such providers should always try to ascertain whether people can afford a product, so they should find out about people's circumstances by getting honestly presented evidence of their income and other loan obligations. Secondly, the providers should give advice about the appropriateness of their products. I am worried about the number of people who take out credit on credit cards when it would be much more appropriate to obtain such credit through a bank loan or another product that would be cheaper, more manageable, more organised and less likely to lead to considerable difficulties.
Products are promoted not only when people are going on holiday, but through 0 per cent. introductory offers. I have already said that I am not against the 0 per cent. special offers—indeed, I have taken advantage of them. They are, however, an easy way of seducing people. People are encouraged to take out £10,000 of credit with no interest to pay for six or even nine months. The problem is that they do not have the ability to pay after that time, so under the credit card companies' calculations, they must pay an interest rate of 15, 18 or 20-plus per cent. However, the companies do not say to people, "Now that you are in this mess, you should convert the credit to a loan or a cheaper product." However, that goes slightly wide of the mark of my amendment.
Amendment No. 21 would make it clear in the Bill that the providers of credit would be obliged to take reasonable steps to determine the circumstances of people to whom they provide credit. That suggests to me that unsolicited credit should not be offered without a second test. People such as the hon. Member for Rhondda (Chris Bryant) might well think that unsolicited credit offers should not be sent out at all, but I am not sure that I would want to inhibit product development in such a way. However, it should be made clear that such credit is being offered as long as the provider can satisfy itself that people have the ability to pay. The providers should make it clear to people that they have to answer specific questions satisfactorily before the credit is given.
Michael Fabricant: For the sake of clarity, would the provision apply not only to financial institutions, but to car retailers and furniture vendors? Such businesses advertise regularly on television and offer nothing to pay for six months, 10 months or a year, after which time people must pay for the credit.
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