Previous SectionIndexHome Page

John Battle (Leeds, West) (Lab): I welcome the early reintroduction of the Consumer Credit Bill in this new Parliament. It is a good framework. I add a word of congratulation to my hon. Friend the Minister, who is still with the Bill and has managed to get it before the House. Some of us have put a lot of work into the Bill, which made good progress during the previous Parliament with contributions from Opposition Members. We got a shape and a framework, and we now have a chance to get it right, as the Minister put it, and to improve it.

I agree however with the hon. Member for Wealden (Charles Hendry) about the timetable for implementation. We are reforming an Act that was passed in 1974 and we need the Bill to become law quickly, because delays while people wait for stronger regulation condemn thousands of the poorest and most needy in our communities to increasing, crippling debt burdens. We cannot wait for ever to get it perfect; we need some action to give people protection while their debt builds up daily.

In July 1999, the Government first stated their intention to bring the Consumer Credit Act 1974 up to date so that there would be better protection of consumers. With the publication of the White Paper, "Modern Markets: Confident Consumers" in July 2001, the then Minister, Melanie Johnson, announced a public consultation with these words:

It was a top priority in 2001, and the years are starting to tick by. She then stressed:

We all assent to that, but we need to get on with it. I make that plea to the Minister. We should not just reintroduce the Bill but get it through Committee—properly scrutinised; I will argue for it to be strengthened—and on to the statute book so that there is some action out there to protect people.
9 Jun 2005 : Column 1425

Five years later, we have had widespread consultation and the White Paper, which has all been welcome. A consensus has built up around the Bill, which is why we are where we are today. Yet for the poorest in our society, such as those in Leeds, West, who are forced to borrow for the basics from doorstep money lenders or to go to the cash-converter shop in Armley in my constituency, the situation is worsening as we speak, deliberate and debate. Their debts are compounding and unfair relationships are deepening into increasing and real desperation. That is why we need regulation and good regulation quickly.

Mr. Sutcliffe: I do not want to interrupt the thrust of my right hon. Friend's remarks and I agree that we need to get the legislation on the statute book, but he will acknowledge the Government's work across the piece on financial inclusion, and the regulations that we introduced in October. So it is not a case of waiting for the Bill to come along.

John Battle: I accept and welcome that. In fact, my hon. Friend underplayed his and the Government's work on funding credit unions and financial advice. I accept that that is all part of the effort to tackle financial exclusion.

Mr. David Drew (Stroud) (Lab/Co-op): I know that the Government feel very strongly about this matter. I am sorry that I missed the introductory statement by my hon. Friend the Minister, but I was elsewhere. One thing that has yet to be addressed is the fact that the very poorest often have additional charges imposed on them as a default, partly because they are unable to protect themselves. Does my right hon. Friend agree that we need to pay attention to that?

John Battle: I completely agree with my hon. Friend. To be fair to the Minister, in arguments on capping interest rates, that is precisely the problem. What is the point of capping interest rates at 30 per cent. if the APR is 29.9 per cent., but behind the interest rate are charges for default, late payment, not meeting the man with a dog who comes to the door on the right afternoon, and so on? We should look at this issue in the round. I know that the Minister is taking that on board. We could do more in Committee on the detail to get the right shape of Bill so that it gives confidence to good lenders in the industry, drives out the worst and protects the poor.

I want to focus on greater protection for consumers who borrow money, especially the poorest 10 per cent. in Britain who use home credit at some time in their lives. Such people are especially vulnerable to high-cost credit lenders—to interest as well as the extra charges to which my hon. Friend referred. Those without a bank account or a credit card have to turn to lenders at the door or to advertisements for cash on the television or in the newspapers, because they have no alternative way of getting the money that they need. They end up paying most to borrow money—more than the rest of us. They pay the highest price to get the basics for their families.

In the heavy world of economics, we hear of financial shocks coming along, but for a family in the everyday world, that shock could involve the arrival of a new
9 Jun 2005 : Column 1426
baby. Someone might need a pushchair or a carry-cot or extra provisions. If a relationship breaks down, a young mother might have to set up another home for her children and to buy a sofa, bed, cooker, fridge, curtains and carpets. Those are the financial shocks in the everyday world. A youngster changing school might need a new school uniform and extra clothing. Just a few hundred pounds is a financial shock to people managing on very low incomes.

At first sight and under such pressure, a weekly repayment of £4.99 might look a good deal, but in reality weekly repayments to home loan companies, credit stores and cash-converter businesses involve a huge rack-up of compounding annual percentage interest rates and, as my hon. Friend said, penalty charges which are sometimes hardly noticeable in the small print. Paying back £4.99 over 156 weeks can mean paying £432.38 to borrow the money. A person borrowing £1,000 will pay £700 interest. That is a massive rack-up and we should tackle that. The lending system is locking the poorest into long-term poverty which they cannot break out of.

It is tragic to see in Armley in my constituency people traipsing into the garishly painted Western Union cash converter shop—as if it is out of cowboy land, as it inadvertently and ironically advertises itself—asking for their pension books or child benefit cheques to be held for cash so that they can go across the road to Kwik Save for the goods for the weekend. I am not against people borrowing money, but I want responsible borrowing that balances the budget and I do not want people to be ripped off by being overcharged. We need to address that.

In a special investigative report in last Sunday's edition of The Observer entitled "Living on £3 a Day", there was a detailed account of the Family Welfare Association—a charity that helps people who have no money—dealing with requests for support from applicants who are trying to get by on £3 a day. The chief executive, Helen Dent, commented:

A family cannot save on £3 a day. All that is far from the lifestyle of shopping for fashionable clothes in Harvey Nicks in Leeds, listening to iPods, drinking in chic bars or dining in gastropubs. It is a completely different world. We need regulatory action to give support to people in that world.

Mr. Austin Mitchell: I strongly agree with what my right hon. Friend is saying. The poor and the less well off face a major problem, but the problem extends more widely than that. Lenders check whether people are a good credit risk by ascertaining whether there is a record of default. If there is no such record, no regard will be given to the income and the other obligations of the borrower. The Office of Fair Trading has the ability to issue notes on responsible lending. It should have a responsibility also to issue enforceable and abiding guidance on what responsible lending is.

John Battle: I completely agree with my hon. Friend. As a practical suggestion, we could build into the Bill a responsible lending test. That would put pressure on the industry not to go out and lend.
9 Jun 2005 : Column 1427

In November 1999, the Treasury—it was the policy action team—published a report in which it estimated that 1.5 million low-income households had no traditional access to bank accounts. They had no access to what we call regular lending services. Such people are at the mercy of the people on the street and the adverts. In November 2004, the DTI, in its full regulatory impact assessment, in the context of the previous consumer credit Bill, estimated that 9 million customers lacked the credit rating needed to borrow mainstream products from high street lenders. However, all those people are getting credit. What is going on? Why is the market not regulated? There is serious financial exclusion for a huge swathe of the population. These people are forced to live not from day to day but from tomorrow to tomorrow. They do so with fear. They dread getting out of bed the next day. Their debts build up and overwhelm them.

What about responsible lenders? Who is helping those who find themselves in that position? Should not lenders play a part instead of saying, "It's their problem. Let them go to a citizens advice bureau and sort out their debts." No. We need to go down the road that my hon. Friend the Member for Great Grimsby (Mr. Mitchell) has suggested. Millions of low-income families rely on credit with high interest rates. Lenders pay scant regard to their ability to pay. The sub-prime market, as it is called, with its huge and excessive default charges, catches out far too many people. There is the pay-day lending system, with interest rates of more than 100 per cent. APR. Door-to-door lenders routinely roll over loan charges for home collection and charge not only interest rates but special charges for a "personal service". The structure locks people into a spiral of increasing indebtedness, and effective regulation is needed.

I agree that most consumer credit businesses treat consumers fairly. I am in favour of credit business as a whole, and most companies comply with their current statutory obligations. However, there are unscrupulous consumer credit businesses that ruthlessly exploit the poor. We should be getting a grip on them. We need to tackle unfairness in any aspect of the consumer credit relationship. That is in the Bill. We need to root out misleading and unfair selling methods, including irresponsible lending. We have gone some way towards that in the Bill. We need transparency in the way in which fees and charges are applied to accounts. We have gone some way in the Bill to getting there. We need to prevent unfair treatment of accounts in arrears. That is somewhere in the Bill. We need a system of effective redress. That is in the Bill. The germs are there but they could be strengthened. The Bill goes much of the way to addressing these issues.

It is proposed to replace extortionate lending with the unfair relationship test. The extortionate lending provision did not work. After 30 years of the previous Act, only 31 cases were brought before the courts to reopen an extortionate credit bargain. Most of those who were in difficulties could not bring their cases to court. They could not get there because the process was too complicated, too expensive and too risky. We should not replace a test and at the same time continue with lack of access to the court. The court might be there, the law might be there, but nobody can make use of the facility to secure protection.
9 Jun 2005 : Column 1428

The courts interpreted extortionate lending too narrowly. I understand why my hon. Friend the Member for Great Grimsby is saying, "Don't tie us down there again. Leave it broad." He is saying that that creates space. Between total openness and narrowness must be some space for specifying what the unfair relationship test should be.

My hon. Friend the Minister might say that we should leave the matter to the wisdom of the courts and that we should not tie their hands. There is sense in that. My worry, however, is that poor borrowers in debt do not get anywhere near the courts to sort out their debts. In reality, they are not usually taken to court for non-payment of a debt. Their loans are rolled over into future borrowing and lending. They are told, "You can have another loan to see you over." The spiral of indebtedness increases without the borrower getting near a court.

Borrowers do not want to go to court. They prefer to tie themselves into more debt. Low-income borrowers are not likely to seek court action. They will not receive legal aid. They cannot go before a court to allege unfairness or to try to seek enforcement of their rights as set out in the Bill. They will not see a court as a place that they can use to get redress. It is difficult for them to go before a court. Low-income borrowers may be in court for other matters—for example, not paying other bills. They do not see a court as being on their side. There must be real opportunities to ensure that poor borrowers have effective redress.

The Minister might say that the alternative is to go to the ombudsman. There are two caveats here. There has been good discussion before the introduction of the Bill, and I am not saying that the Bill will not work. However, there is a problem that needs to be ironed out. If the ombudsman has an office in London, and only London, the procedure will not be much use in Leeds and Bradford. People will not traipse down to London to sort out their problems with the ombudsman. The structure must be examined. A more fundamental point is that the ombudsman will wait for court decisions on what is unfair before settling disputes. The courts will be used first. We are still locked into the court being the key in defining the unfair relationship test.

Next Section IndexHome Page