Examination of Witness (Questions 945-959)
MS FIONA
PRICE
22 MAY 2006
Q945 Chairman: Welcome to the Committee.
You are the embodiment of your Minister and the whole department
for this session. I have spoken to Ian McCartney and I appreciate
his difficulty. He cannot be here so we are delighted to welcome
you. For the sake of the record, I mentioned the word "stuchie".
John Thurso has kindly translated that to Colin Breed and "stuchie"
is a Scottish word meaning a "rammy". Could you tell
us what policies the DTI are promoting for financial inclusion?
Ms Price: I know the Minister
is very sorry that he cannot be here today. The Department of
Trade and Industry is particularly concerned with issues around
over-indebtedness and the regulation of consumer credit which
clearly are very relevant to aspects of the financial inclusion
agenda. We set out a strategy on tackling over-indebtedness in
the Consumer Credit White Paper in December 2003 and the subsequent
action plan in 2004 and reported on progress against that last
year. We are funding debt advice to help those who get into financial
difficulty, both telephone advice where we are giving £1
million a year to the National Debt Line and, with the face to
face debt advice project now about to come on stream, there is
£45 million over the next two years for that. Those are the
major spending commitments.
Q946 Chairman: Why is the DTI planning
to abolish the Financial Services Consumer Panel or to weaken
its statutory role under the Financial Services and Markets Act?
Ms Price: We have no plans to
abolish the Financial Services Consumer Panel. What the department
has done is to consult on the possibility of setting up a new
consumer body which is provisionally titled "Consumer Voice"
which will bring together a number of consumer bodies with the
aim of having a more coherent, stronger voice for consumers. One
of the options on which we consulted would involve including the
Financial Services Consumer Panel within that body. There are
also options which would involve leaving it where it is. The consultation
on that closed last month and we are now considering the comments
we have received. We will be publishing a summary of the conclusions
in due course.
Q947 Chairman: Could you keep us
informed on that?
Ms Price: Certainly.
Q948 Peter Viggers: The Financial
Inclusion Fund to provide debt advice is going to provide advice
during the period 2006/8. Can you spell out the main heads of
expenditure of that 45 million?
Ms Price: We held a competition
and invited bids from advice agencies for that money. We have
selected 14 projects to receive money under the fund. I cannot
tell you exactly how it breaks down but very much the majority
of that money will be going to pay for advisers and we are expecting
to increase the adviser population by around 450 to 500 advisers.
Q949 Peter Viggers: What are the
longer term plans for providing debt advice after 2008?
Ms Price: I clearly cannot pre-empt
the outcome of the comprehensive spending review in 2007 but we
will obviously be looking at the case for rolling that forward.
Q950 Peter Viggers: How long does
it take to train a financial adviser? Who is going to volunteer
to become a trained financial adviser if the job is going to end
in 2008?
Ms Price: It takes about six months
so there will be a good period for those people to work before
March 2008.
Q951 Peter Viggers: As long as a
year perhaps: six months' training and a year's work?
Ms Price: We would expect people
to be being recruited over the summer and the first people may
be coming on in the autumn so it will be more than a year.
Q952 Peter Viggers: You may not wish
to respond but I put it to you that it would help make a coherent
policy if longer term plans had been announced at this point.
Ms Price: We have to work with
the government spending cycle. The future funding will be looked
at as part of the comprehensive spending review.
Q953 Peter Viggers: Is your department
looking at level of debt? I note the comment of the Governor of
the Bank of England that calls to the National Debt Line were
at a record high. He expressed concern about high household debt
levels. Does your department agree that there is a potential social
problem and what steps are being taken?
Ms Price: Levels of borrowing
are certainly high and it is certainly true that the number of
calls to debt advice agencies is increasing. It is not clear that
the reason for the increase in numbers is that people are suffering
a significantly greater problem. Other possibilities are that
people are being encouraged to seek advice earlier which is something
we very much want them to do and more people are seeking advice.
Q954 Peter Viggers: Does your department
take the view that the financial industry is behaving responsibly
in the manner in which it advertises debt? Do you think the financial
services industry should take more steps to promote debt awareness?
Ms Price: We certainly believe
that the financial services industry should act responsibly in
lending and indeed that consumers should act responsibly in borrowing.
We do encourage them to support the services for those who get
into difficulty. We would like to see them all contributing and
encourage them to do so.
Q955 Mr Breed: At the heart of the
relationship between the lender and the borrower, particularly
for low income households, is the perception of fairness as such.
That determines whether the contracts are fair and whether people
get into trouble. Can you tell us what new duties the unfair credit
provisions in the Consumer Credit Bill will place upon the lenders
in particular to ensure that, when they are providing credit to
low income consumers, they are looking at this whole area of fairness?
Ms Price: The new Consumer Credit
Act 2006 which has just received Royal Assent will bring in a
new right for consumers to challenge credit relationships which
are unfair. That will apply to all kinds of consumer credit. Consumers
will be able to challenge all the conduct in the credit relationship,
not just the terms of the agreement, so the way it has been operated
as well, which will be a significant improvement on what we have
at the moment.
Q956 Mr Breed: The lenders will have
certain duties of care to ensure that they are acting responsibly
in respect of a person's ability to take on that credit and everything
else. Do you think it will be rather similar to the whole idea
of the mis-selling of insurance? In other words, can we get to
a concept of a lender mis-selling a product to a borrower?
Ms Price: The legislation does
not approach it in quite that way but it does make clear that
if a lender behaves irresponsibly the Office of Fair Trading can
take that into account in deciding whether they are fit to hold
a licence and can impose sanctions if they think they are not
behaving appropriately. If a credit relationship or credit agreement
is found to be unfair, it is unenforceable so the lender would
not be able to recover the money.
Q957 Mr Breed: If the borrower went
to court, the court might decide to set it aside because it was
considered, under the terms of that provision, unfair in the way
it was lent?
Ms Price: Yes. It would be open
to the court to decide that or to amend the terms of the agreement
so that they were seen to be fair.
Q958 Mr Breed: Elaine Kempson told
us that she was currently undertaking a study into illegal lending
for the DTI and that some of the initial findings were already
causing some concern. Can you give us any update on the latest
results of that study?
Ms Price: The researchers are
still analysing the results of that study. The initial results
suggest that illegal lending is very much focused in micro-communities.
It is not widespread across the country but it is quite common
in small areas. It is also suggesting that the great majority
of people regard illegal lending as harmful to the community and
do not want to see it happening. It is suggesting that there may
be two kinds of people who are using illegal lending. There are
the sort of people who have a chaotic lifestyle maybe. Often,
it goes along with drug and alcohol abuse. There are other people
who are financially excluded and can find no other alternative.
Q959 Mr Breed: I find the whole concept
of illegal lending quite interesting. I can understand formal
and informal lending with a proper contract. I am not sure that
what the lending was going to be used for might be termed illegal.
I am not certain that the transaction might be. When are we going
to get the results of that study and when is it going be made
available?
Ms Price: We are expecting to
publish the results in July.
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