Anne Snelgrove (South Swindon) (Lab): Has my hon. Friend considered outlawing the unfair order of payment on credit cards? That is a problem in my constituency and many others when constituents with 0 per cent. credit cards do not know that the cheapest debt is paid off first. They can therefore rack up extra debts without realising it. That has led to credit card providers making an estimated £500 million extra profit a year. In my constituency, the average debt for those who ask for help with debt is £35,000, so I hope that my hon. Friend will look into the matter.
Mr. Sutcliffe: I welcome my hon. Friend's contribution. Under the regulations that were introduced in October last year, we addressed the issue of transparency and the need to make sure that advertisements and agreements made it very clear what the interests rates were that people had to pay. However, I give her the assurance that we will continue to look at the issue.
I was referring to the lack of information to people during the life of a loan and especially when they fall into arrears. At present, lenders are not obliged to provide much information to consumers during the loan term, so the Bill has proposals to create minimum standards for lenders to provide regular account information and to tell consumers when they default and when they are charged. These reforms will ensure that lenders can be prevented from continuing any bad practices and, if necessary, excluded from the market, that responsible lenders can be regulated by light-touch regulation, and that consumers can have confidence in a competitive market.
Improving the standard of regulation is of no use, however, if that regulation does not do the job for which it is designed, so this brings me on to our third aimto ensure that regulation is appropriate. Regulation must be appropriate and measured, ensuring comprehensive protection for consumers while allowing industry the flexibility to innovate. The UK has one of the most dynamic credit markets in the world but, to keep it that way, regulations must meet the needs of the market, the consumers and the industry. Making sure that
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consumers are protected is an important part of creating that fair and effective credit market. So the Bill provides comprehensive protection for consumers by removing the £25,000 financial limit, extending the protections of the Act to all consumer borrowing.
An extensive period of consultation has highlighted concerns about the impact of regulation on business lending and high net worth consumers. The Bill therefore provides protection where it is needed by maintaining the protections for small business lending up to and including £25,000, but excluding other business lending. The Bill allows industry flexibility, with exemptions allowing high net worth borrowers to opt out of regulation.
It is also important that lenders are confident that they are operating on a level playing field. Currently, many lenders are unfairly penalised for minor and insignificant technical errors to an agreement. The Bill makes the section 127 provisions on the enforceability of defective agreements more proportionate. Passing discretion to the courts will not remove consumer protection, because agreements are still unenforceable unless the court decides otherwise. However, it will increase fairness across the sector, and allow lenders to compete on the basis of best practice.
Ms Keeble: My hon. Friend will recall that in the previous discussions, we raised issues about the money and advice that is provided. The procedures that he has outlined are extremely good, but consumers will need a lot of help to get through the process involved. Has he given thought to that?
The financial inclusion fund that was announced in the last Budget means that £45 million will be made available for consumer education. It is vital and will go to a variety of organisations that offer advice and support. Credit when used properly can be a useful tool, but we do not educate people about money from an early age. One of the issues with the financial inclusion fund will be to try to give education about the use of finance to all people from an early age.
Mr. Hepburn: Has the Minister thought about making representations to the Chancellor of the Exchequer for a windfall tax on the billions pounds of profits made by the high street banks every year so that we can fund an extension of credit unions that deal with a totally different market from the banks, which do not want to know about low-paid borrowers, and can also fund an education process so that people know the difference between priority and non-priority debts?
My hon. Friend raises an interesting point. Credit unions are vital, we are supporting them
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and we want them to develop, but I will leave making representations to the Chancellor on windfall taxes to my hon. Friend.
The Bill is built on principles of transparency, protection and fairness and sends a clear message to unfair and exploitative lenders that there is no place for them in our society. We have a clear vision of how a healthy consumer credit market should function, with responsibilities for both consumers and industry. We see consumers taking responsibility for controlling their finances, using credit sensibly and taking advice at the earliest opportunity. We see the industry providing consumers with the information that they need to make informed choices, lending responsibly and ensuring that advice and support are available for consumers in difficulty. The Bill sets the framework for that vision of a fairer, more competitive consumer credit market for the 21st century and I commend it to the House.
Charles Hendry (Wealden) (Con): I thank the Minister for the kind and courteous words with which he opened the debate and, in turn, welcome the Secretary of State to his new post. We had contact when he was Minister for Employment Relations, Industry and the Regions and I had tremendous admiration for the way in which he carried out that role. I look forward to working closely with all the Department of Trade and Industry team in my new capacity.
The Conservative party welcomes the reintroduction of this important and overdue Bill to update our consumer credit legislation. Only one or two changes have been made to the Bill introduced in the last Parliament and the measure has broad support on both sides of the House, as well as from key consumer organisations and the credit industry itself. That is a strong working basis on which to take the Bill forward. I hope that the Minister enjoys that while he can because it is not often that the Government manage to maintain the confidence of even their own Back Benchers, let alone forge a broad consensus across the House.
The need for the Bill is clear. Current legislation governing the consumer credit industry is now seriously out of date and, as such, fails to provide consumers with the protection that they need in a rapidly expanding and increasingly diverse and confusing credit market. We have already heard that confusion can be caused when people compare rates of interest calculated on different bases.
It is 31 years since the last consumer credit legislation was passed. In that time the credit landscape has changed out of all recognition, partly as a result of changing lifestyles and attitudes to debt, and certainly because of the liberalisation of financial markets, which has allowed a highly dynamic and sophisticated industry to develop. As the Minister told us, only one type of credit card was available in 1971, but today there are more than 1,300. Thirty years ago, £32 million was owed on credit cards, but today the figure is almost £50 billion.
Although that expansion has unquestionably increased competition, there has been a growth in some of the most unacceptable elements of the credit industry. As Members of Parliament, we have seen in our surgeries the consequences of irresponsibleor worse,
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roguelenders and extortionate credit agreements. We have seen such consequences destroying people's livelihoods, families and mental heath. In the worst cases people have tragically been driven to suicide because they have been unable to cope with the huge debts that they have built up. Such people include Stephen Lewis, who was highlighted in today's Daily Mail. He ran up debts of £70,000 on 19 different credit cards, despite earning just £22,000 a year. When he could no longer meet the repayments, he tragically took his own life, leaving a wife and two young children.
I pay tremendous tribute to the work of citizens advice bureaux and other debt advice organisations that help many individuals and families to deal with financial difficulties. Without those bodies, many more people would suffer the same sort of problems, which explains why we need the Bill to crack down on loan sharks, whose activities are often the cause of such difficulties. Those people often deliberately set out to deceive consumers.