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The Minister for Trade (Mr. Ian McCartney): First, in the traditional but a sincere way, I congratulate my hon. Friend the Member for Southampton, Test(Dr. Whitehead) on securing this topical and timely debate. I also congratulate my hon. Friend the Member for Bridgend (Mrs. Moon) on her intervention supporting credit unions, particularly her own, which has helped those who have suffered at the hands of Farepak. I shall return to that issue on Thursday and give further information to Members and to you, Mr. Speaker, on the final arrangements for assistance in the form of a good-will gesture to help those people through Christmas.
I want also to put it on the record that I am a member of my local credit union and in fact helped to set it up;my membership number is 16. It has grown to a membership of more than 2,000 in the past decade. So I come to the House not just with knowledge of the issues raised by my hon. Friend the Member for Southampton, Test, but empathising with them. If time does not allow me to deal with all the issues that he raised, both intellectually and politically, I undertake to write to him and to my hon. Friend the Member for Bridgend and to place that response in the Library for Members to consider.
As my hon. Friend the Member for Southampton, Test noted, it was only last week that the Competition Commission published its report on home credit. I very much welcome the work that the commission has done in investigating this market, and its producing recommendations on how to make it work better for consumers. Home credit lenders lent about £1.3 billion to 2.3 million customers in 2005. Most home credit loans are for small sums paid in cash, and 70 per cent. are for less than £500. As my hon. Friend said, people who take out home loans are more likely to be young women with families, living in a low-income household in housing rented from a local council or housing association.
There is no doubt that the home credit industry fulfils a real need for small, short-term loans. Research shows that customers are generally very satisfied with the service that they get from home credit lenders. However, because such borrowers include many who may be vulnerable and who have no alternatives in obtaining credit, it is particularly important that the home credit industry should be fair, competitive and organised in a transparent way for the benefit of those who borrow from it.
There have long been concerns that that is not the case and that the charges for that form of credit are excessive. Those concerns led the National Consumer Council to make a super-complaint to the Office of Fair Trading, which in turn referred the industry to the Competition Commission, which reported last week.
The commission found that there was indeed a lack of competition in the market, whether from other credit products, new entrants to the market or among existing home credit providers. That means that customers are paying higher prices for their loans than would be expected in a competitive market. The commission found that, overall, home credit customers paid £75 million a year more than they should have. That is a matter that should concern all of us, because those customers are the people who can least afford to pay such high prices.
The report sets out four measures to increase price transparency and promote competition in the market. The commission will require lenders to share data on customers payment records with other lenders. As my hon. Friend noted, lenders will be required to publish details of their prices on a website, and ensure that the terms for early settlement of home credit loans are fairer.
As part of the implementation of the Consumer Credit Act 2006, we will require lenders to give borrowers a yearly loan statement, which will have to include the original loan amount, the interest rates for the statement period, the start date and remaining term of the loan, the opening balance, payments made, debits and closing balance. The competition has recommended that for home credit loans the statement should also give the total cost of the loan and should tell borrowers that they are entitled to settle the loan early, and that they can contact the lender to find out how much that would cost. It should also inform borrowers about the price information website and that they can obtain additional statements from the lender.
We shall look carefully at that recommendation, alongside the responses to our consultation on the proposed statements, which has just closed. In the meantime, I can tell the House that I believe that it is very important to ensure that customers have clear information about their rights and about the remedies when things do not work out.
My hon. Friend suggested that the Government should go beyond the remedies that the Competition Commission concluded are appropriate to address the adverse effect on competition that it found in the market. We introduced wide-ranging reforms of competition law in the Enterprise Act 2002. Among the main aims of the reforms were to take politics out of competition decisions and to provide for more transparent and accountable decision making by the competition authorities. We established the commission and the OFT as independent competition regulators, so I cannot second-guess the commissions conclusions and introduce further measures before the remedies it identified, after long and careful consideration and consultation, are put to the test. To do so would go against the aims of the Act, but I recognise what my hon. Friend said: we might take politics out of competition, but we cannot take politics out of poverty.
My hon. Friend proposed interest rate caps of44.24 per cent. on loans of less than 35 weeks and of 69.26 per cent. on loans of more than 35 weeks. I am not sure why the amounts are so precise or what their effects would be, but perhaps we can talk about that at a later date. When the commission carried out its investigation, it gave careful consideration to whether a cap on interest rates should be imposed in the home credit sector. It consulted widely on that proposed remedy but concluded that it was not the right way forward.
We also thought carefully about the matter during our review of consumer credit legislation and commissioned research into the effectiveness of interest rate ceilings. Like the Competition Commission, we are not convinced that introducing interest rate ceilings will help the consumers they are supposed to protect. I am particularly concerned about the fact that if access to home credit was less easy, it might force many vulnerable consumers to use inappropriate products, or even to go outside the regulated market and end up at the mercy of illegal loan sharks, which evidence shows is a real risk.
The research we commissioned looked at the impact of interest rate ceilings in a number of countries. In France and Germany, where there were interest rate caps, vulnerable consumers had less access to legitimate lenders and twice as many consumers admitted to borrowing from illegal moneylenders as in the United Kingdom.
Consumers benefit from a competitive market offering choice, where information is available to enable them to make the right choices. The commission decided that we should set out to achieve such a market. None the less, the commission and the Government said that we will keep the issue under review. I welcome this important opportunity to ask my hon. Friends the Members for Southampton, Test and for Bridgend to submit any relevant evidence, which will be dealt with effectively in any subsequent review.
My hon. Friend suggested that it is not enough to require only larger home credit lenders, with more than 60 agents or a £2 million turnover, to share data within nine months. He suggested that a wider, faster introduction of data sharing is needed to help borrowers build a suitable credit rating. As I said before, the Competition Commission has considered that. There are costs to lenders in getting data into the right format and setting up the systems needed to exchange data with credit reference agencies. That should be introduced in a way that is effective for customers, ensuring that there is no excuse for the industry.
My hon. Friend believes that the website proposed by the commission is a good idea, but is concernedthat the most vulnerable lenders have limited internet access and may have problems understanding the information. Finance is not an easy subject to understand, which is why I am so supportive of the measures being developed by the national strategy for financial capability, led by the Financial Services Authority. They include making financial education part of the school curriculum, providing financial education in further and higher education, rolling out seminars for employees in the workplace and providing information packs for parents.
I also recognise something else. To tackle the clear inequality of access to the internet, we have invested in bringing the internet into every community. There are now more than 6,000 UK online centresplaces where people can access the internet in a safe, secure environment and where they can receive technical support and training. UK online centres have targeted areas where they are likely to have the most impact on inequality. They operate in all 88 neighbourhood renewal areas and in 2,000 deprived wards in England and Wales. Centres are in diverse venues, ranging from community centres to libraries, colleges and cyber cafés. Some 95 per cent. of household are within 5 km of a centre and virtually all households in the United Kingdom are within 10 km of a UK online or Learndirect centre. My hon. Friend is correct: there is an issue, but I hope that he can see that we are actively engaged in ensuring that there is no inequality in access to the internet and the capacity to use it effectively.
I said that there would be a serious risk of driving more people to use loan sharks if we put interest rate caps on. However, we are committed to tackling loan sharks. It is often some of the most vulnerable and excluded who fall prey to illegal moneylenders, so we have been funding pilot projects in Birmingham and Glasgow to investigate the impact of strong enforcement against those moneylenders. We have invested £2.6 million over two years in the project. Both pilots are performing well and prosecutions have already been secured in the midlands and Scotland, with more to follow.
Over the years, my constituency has been bedevilled by illegal loan sharks, who terrorise individuals and communities. They have no place in our communities, or on our streets or doorsteps. Such prosecutions and subsequent ones will send a clear message that there is no hiding place for those people. They do not own or control our communities and we want them out of them. They inflict misery on families and communities, particularly the elderly and other vulnerable people who are their targets, such as single mothers on benefits, those with drug and alcohol addiction, and people with mental health issues.
Just last week, my hon. Friend the Economic Secretary and I announced a further £1.2 million of funding for the projects. That will mean that the two existing teams will be able to continue for another year and will be able expand their operations into other areas where there is evidence of illegal loan sharks operating: for example, Liverpool, Sheffield and west Yorkshire. At the same time, I published a research report into the scope and extent of illegal moneylending and I will send my hon. Friend the Member for Southampton, Test a copy. That, along with the evaluation of illegal moneylending pilots, will give us the best way forward after 2007-08.
I welcome the fact that my hon. Friends the Member for Southampton, Test and for Bridgend welcomed the continuing growth of credit unions. They are an important source of affordable and secure loans. One of the important ways in which we have been seeking to provide people with access to such loans is through the promotion of the credit union sector. Credit unions offer an affordable source of credit for those on low
incomes and/or those who are financially excluded and cannot get bank loans. We have invested £36 million from the financial inclusion fund for work on boosting the credit union movement in deprived areas in England, Scotland and Wales.
The credit union movement, however, is patchy throughout the country. As my hon. Friend the Member for Southampton, Test has quite rightly indicated, it needs a larger capital base to grow and become sustainable. The pilot projects are all about finding the most appropriate way of building a base and sustaining it. The selected credit unions were chosen to take part in the exercise on that basis. I hope that the projects will underpin the financing of loans for the poor in our communities in future years. It is absolutely right that people like ourselves should be part of the credit union movement; not to borrow, but to invest so that others can afford to borrow, while being dealt with fairly and sympathetically.
Consumers benefit from competition, but we must also make sure that the market is fair. Competition on its own will not deliver that, so we need to ensure that lenders are regulated effectively. The Government are in the process of implementing the Consumer Credit Act 2006, which is the final step in a wide-ranging reform of consumer credit regulation. The Act will improve consumer rights and redress. It will also improve the regulation of consumer credit businesses and establish a fair and competitive framework for consumer credit agreements.
Two aspects of the new Act are especially relevant to our debate. From April, we will be giving consumers the right to challenge an unfair credit relationship. We have deliberately not defined unfair so that the courts will be able to take account of all aspects of a credit relationship when deciding whether it is fair or not. That will include a consideration of what happened before and after a credit agreement was reached, as well as the terms of the agreement itself. We will also be giving borrowers the right to take their complaints to the Financial Ombudsman Service, which will mean that they will not have to face the cost and hassle of a court process to get their cases resolved. That represents a major step forward, so I hope that hon. Members will help to promote the purposes behind the new proposals.
I thank my hon. Friend the Member for Southampton, Test for giving us the opportunity to debate this important topic. I believe that the changes that the Competition Commission is bringing forward and those under the Consumer Credit Act 2006 will result in more competition, better value and greater rights for home credit customers. I assure him that we will be looking carefully at the impact that they have in practice to ensure that that is the case.
The Treasurys £120 million financial inclusion fund includes £45 million for the funding of a free face-to-face debt advice service in England and Wales over the financial years 2006-07 and 2007-08. Ithas also meant that we have been able to develop16 partnerships throughout England and Wales to ensure that new debt advisers are added to those already in the system. We are building capacity and opportunity. Over the next two years, approximately 100,000 people will be helped through the new programme. The majority of those 100,000 clients will
be the very people about whom my hon. Friend spoke so eloquently this evening. We are both in the same ball park and heading in the same direction.
We are also heading in the same direction on our desire to ensure that there is equal access to financial services products. It might well be that other things will have to be done in future yearsI do not rule that out. However, I do rule out any continuing opportunity for loan sharks to prey on our people. I give the House a commitment and assurance that the work that we are doing through the pilots will help us to go a long way towards addressing the problems that my hon. Friend outlined. The evidence that he gave us was not about people operating in a regulated marketplace, but about people who were acting as illegal moneylenders. The local police and trading standards authorities have an important role in addressing such people. Those
moneylenders prey on people because they believe that they will be too frightened to speak up and speak out, but we can do the speaking up and speaking out for them. Every illegal moneylender whom we bring to court, prosecute and send to jail is another nail in the coffin of those who prey on people in our communities.
I thank my hon. Friend for raising these issues with me. I will review Hansard tomorrow and, if necessary, I will write to him. In any event, I will send him the details and information that I outlined. I hope that he will accept what I have said in good faith and that he understands that the action that we are trying to take is along the lines that he suggests. I assure him that we will get there in the end.