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Mr. Sutcliffe: We are not disagreeing over the objectives that we are trying to achieve. I do not want to stray from the Bill, Sir John, but, with your great knowledge and background in this area, you are aware that the Select Committee on Treasury is doing a great deal of work on financial exclusion. That has to be looked at as a whole. Although we are examining particular elements of the Bill, we shall consider all aspects of consumer education on the subject of handling money, such as debt or money advice. That is the direction we are going in.
The hon. Lady may not recognise this as a major point as regards her amendment, but the balance of relationships has taken time to develop. There is a strong home credit market of small businesses that lend money, and they regard having to provide more information as an onerous task. I accept her point that consumers may not be fully informed but section 77 of the 1974 Act provides the right to request a statement, regardless of the length of the agreement. Protections are in place. Using her logic, this amendment will not improve matters if people do not understand the situation. In the spirit of what we are trying to achieve, I hope that the hon. Lady will withdraw her amendment.
Dr. Tonge: I thank the Minister for his patient explanation. As I seek to gather reinforcements, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Dr. Tonge: I beg to move amendment No. 30, in clause 6, page 4, line 36, at end insert—
'(c) shall clearly state within the agreement the amount borrowed and the total interest payable on the loan; and
(d) shall advise the debtor borrowing on credit cards that for long term balances other credit products such as loans or overdrafts may be available; and
(e) shall be obliged to give free and impartial advice to the debtor as to alternative products that may reduce the cost of borrowing.'.
The Chairman: With this it will be convenient to discuss amendment No. 16, in clause 6, page 4, line 38, at end insert
(a) the amount paid by the debtor to the lender to date;
(b) the amount remaining to be paid by the debtor to the lender; and
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(c) the remaining term of the agreement.'.
Dr. Tonge: The amendments follow on from the previous discussion. There is huge concern that people do not know what they are doing, or are letting themselves in for, when they take out loans. They are subject to huge pressures from many companies. They must lose count of the amount of junk mail they receive from financial companies offering loans, credit cards or other enticements that can lead to debt.
One of the bees in my bonnet is the advertising industry; a great deal of blame can be laid at its door. The intensity with which the industry advertises to get people, particularly those who are lonely or elderly, into debt is horrifying. When my mother was old she did not get much post. Like many elderly people whose friends had died, she opened everything that came through her letterbox. Most people tear up much of their junk mail; my mother used to read even the pizza offers and keep them to discuss them with me when I visited. There are many people like that in my constituency and throughout the country. They see enticing offers for what looks like cheap money—a lump sum for which they pay a small amount each month—and they are seduced. We must protect those people. From the beginning, debtors must be clear about the amount borrowed and the total interest payable.
Mr. James Plaskitt (Warwick and Leamington) (Lab): I take the point about vulnerable people receiving this information. With regard to paragraph (c) of the amendment, can the hon. Lady explain how it would be possible for the creditor to include in the statement the total interest payable? Surely that would depend on the repayment profile chosen by the person carrying the debt?
Dr. Tonge: If the debtor agrees on a certain interest rate and a certain number of payments, surely it is possible to work out the total to be paid at the end. When I did simple interest and compound interest at school, it was possible to work out how much a loan would cost overall—[Interruption.] I happily bow to the superior mathematical geniuses in the Room.
Mr. Battle: I am grateful, but I would not like to stand up as a superior mathematical genius. I simply want to speak about the experience of people in my neighbourhood. The problem is not so much the adverts on TV, but the people who knock on doors. If a person has £4.99, he or she can borrow £150 to buy a bed, but will end up paying back nearly £400. The problem is not only the interest, though. If a person cannot afford the weekly payment on a Friday because they have paid another bill, they miss a week's payment and there are extra charges for that. Often, rather than the interest rate, it is the compound interest on those charges that is the problem, and that fact is not recognised. As I said, the problem is caused not so much by the television adverts, but by the people who knock on doors, and by the collection process. The Bill might do something to tackle that. The hon. Lady mentioned interest rates, but that is only half the cost.
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The darker side is buried in the charges that add to the compound interest and cause the situation that the hon. Lady outlined.
Dr. Tonge: The right hon. Gentleman is right, and it is that issue that I am so concerned about. It is not pointed out to people that if they default next Friday because they cannot pay their contribution, those charges will make their debt much bigger than they ever imagined. That should be pointed out, and it is very sharp practice if it is not. People must also be made aware of the alternatives. Many young people and students think that credit cards are the ideal way to borrow money. They do not shop around to find out the differences in credit card interest rates. There has been a huge debate in the press and in Parliament over recent weeks about the fact that those can vary hugely.
People are simply not aware of the facts. When people take out such loans or become overdrawn on their credit cards in that way, it should be made clear to them just what they are letting themselves in for. People should not be seduced into taking a loan that they are never going to be able to pay back. Is it not reasonable for a company to say that there may be other options? If someone wishes to take out a loan on a credit card, is it not the duty of that company to say that it might be better if they took out a bank loan or sought advice from a financial adviser or their bank? We give far too much leeway to companies to push what the debtor will see as cheap money, which turns out to be very expensive money and sometimes totally ruinous.
I have constituents who find themselves with huge, unexpected repayments to make, simply because it was never explained to them in the first place. I may be accused of being too kind and too lenient, but although we may—I hope—learn a certain amount at school, sometimes we do not pay enough attention to practical teaching on the practical problems that people may encounter in their lives, such as interest and compound interest. A few lessons on credit cards, banks and how credit companies and money lenders operate might be far better than learning about isosceles triangles. Perhaps we also need to address the education system.
I move the amendment in the interest of giving consumers much more information before they take out loans.
Mr. Robertson: I sympathise with the spirit in which the hon. Member for Richmond Park moved the amendment, but I see possible problems with the drafting. I entirely agree with the point that very busy and vulnerable people may fall foul of the agreements, but it can happen to those who do not fall into either category but who simply do not understand the legal technicalities of a contract. That is what we are talking about. People study contract law at university for many years, then may take articles and study for several more. They then become solicitors, but even
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they sometimes do not understand the intricacies of contract law, so it is a little much to expect anyone else to understand it fully.
There is, of course, the legal philosophy of caveat emptor—let the buyer beware. Ordinarily, in a free society, that is quite reasonable, but when we come to very complicated contracts, the relative strength of the parties is very different. I have many concerns not only about the way in which agreements are set up, but the way in which they are run. If I interpret it correctly, one of the reasons for the Government's introducing the Bill, apart from addressing how contracts are set up—I wish to turn to that important matter during the debate on amendment No. 16—is to deal with the way in which they are run. I certainly do not want extra burdens to be placed on businesses, which are, by and large, honourable and successful. I am part of the shadow Industry team, and we are attempting to devise deregulation in order to make businesses more competitive. There is far too much red tape in Europe and in Britain, and we wish to get rid of much of it, but we do not wish to do so to such an extent that it will create unnecessary problems. It is important that we do not lose sight of the fact that people are getting themselves into terrible amounts of debt in this country. We have record debt of more than £1 trillion. It is so large a figure, I am not sure that I understand how much it is.
Mr. Sutcliffe: Will the hon. Gentleman give way?
Mr. Robertson: The Minister is about to intervene. I hope that he will tell us how many zeroes there are in a trillion.
Mr. Sutcliffe: I shall not do that although I am grateful to the hon. Gentleman for giving way. I remind him that 80 per cent. of that £1 trillion of debt is composed of mortgage repayments, which, in the long term, will make people asset rich. I am sure that the hon. Gentleman will acknowledge that.
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