Examination of Witnesses (Questions 684
- 699)
TUESDAY 19 JUNE 2007
MR MIKE
DAILLY, MS
SUSAN MCPHEE,
MR JOHN
PATTON, MS
LORETTA GAFFNEY
AND MR
CHRIS MALLON
Q684 Chairman:
Good morning and welcome. We are conducting an inquiry into poverty
in Scotland in urban areas and rural areas. We have taken evidence
from different people in different parts of Scotland, but I believe
this is our first session in Glasgow and you are all welcome.
Can you please introduce yourselves for the record.
Mr Mallon: I am Chris Mallon from
ABCUL. I am General Manager of ABCUL Scotland. ABCUL is one of
the trade associations in Scotland, along with the Scottish League.
At present we are ruling on things such as the Banking Services
Project. We have rural and urban credit unions, a mixture of associations,
such as workplace credit unions and community based credit unions.
Ms Gaffney: I am Loretta Gaffney.
I am the Manager of Easterhouse Citizens Advice Bureau, and we
are a member of Citizens Advice Scotland. The bureau has been
established in Easterhouse for over 30 years and I have been a
member of the bureau for over 20 years.
Mr Patton: I am John Patton. I
am the National Development Officer of the Scottish League of
Credit Unions. I was appointed to that post in 2000 and I shall
retire from it shortly. I had hoped to be retired by now, but
I shall be retired by 1 August. I have responsibility for supporting
credit unions which are affiliated to the Scottish League. My
background is in education, and the bulk of my work is involved
with lobbying, training and development.
Ms McPhee: My name is Susan McPhee.
I am Head of Social Policy and Public Affairs at Citizens Advice
Scotland. Citizens Advice Scotland is the umbrella organisation
of the Citizen Advice Bureau in Scotland and we provide support
services for the CABs.
Mr Dailly: I am Mike Dailly. I
am the Principal Solicitor of Govan Law Centre. Govan Law Centre
very much tries to use the law to alleviate and tackle poverty
in ways such as defending evictions and repossession cases, but
also in trying to use the law in an innovative way.
Q685 Chairman:
Before we start with the detailed questions, would you like to
make any opening remarks or statements?
Mr Dailly: In terms of the topics
that we will cover, I hope that today's session will be looking
at the Financial Services Sector. It is my concern, and the concern
of Govan Law Centre, that the most vulnerable members of society
seem to be the most exploited by the Financial Services Sector,
whether that is through consolidated loans, through court expenses,
or, indeed, bank charges or unlawful penalty charges. Quite simply,
the poorest people in Scotland, and, indeed, the UK, pay for the
most expensive credit.
Ms McPhee: Debt is the largest
single issue for the Scottish Citizens Advice Bureau, and last
year we dealt with over 211 million pounds worth of debt. One
fifth of all new cases brought to the CAB are all to do with debt.
Over the last few years what we are seeing is an increase year-on-year.
Our research has shown that our clients are in debt for two reasons:
firstly, either they took on credit which they thought they could
afford and then something has happened, for example, illness or
a job loss or a loss of overtime or something like that, but the
second reason is poverty. Basically, their income levels simply
mean they have to use credit to get by, so they use credit cards,
cash loans, et cetera, to supplement their incomes, not to buy
luxury goods but to purchase food, utilities and other household
essential items. When they come to the CAB, at that point their
debts are usually unmanageable and it is not generally due to
poor budgeting, it is simply due to lack of income, coupled with
things like harsh loan terms, such as high interest rates and
charges. I hope today that these are some of the things we are
going to explore.
Mr Patton: Chairman, I would amplify
what the two previous speakers have said. I have been involved
with credit union for over 40 years. I became involved with credit
union because I saw it as a vehicle which could provide affordable
financial services to people who did not normally have access
to the mainstream financial services. As my accent probably betrays,
that involvement began in Ireland, and in Ireland over 50 per
cent of the population belong to a credit union. It is a cross-community
effort. If I can use the word advisedly, all classes within society
belong to credit union. In my first credit union in Derry the
chair of the credit union was a GP. The board of directors had
several graduates on it, but it had builders and dockers and a
broad mix and that would be my vision of what I would like to
see happen. I have a feeling it is not going to happen this week,
but I would like to see it happen in the Scottish Credit Union
movement and, indeed, in the Credit Union movement throughout
the UK where there would be a real ability to make affordable
credit available to people who do not normally have access to
it and who are paying the sort of extortionate rates of interest
which Mike alludes to.
Ms Gaffney: I have worked in Easterhouse,
as I say, for many years, and you may be aware that although there
are efforts to generate a Greater Easterhouse area, it remains
an area of multiple deprivation. Roughly 82 per cent of the work
we do in Easterhouse and deliver is money related. Other issues
which come would be debt and benefits and I am concerned about
the continual increase in debt. Before coming along here today,
I was looking at an AGM report from 10 years ago and I recorded
that I was alarmed at the increase of debt then, which was 17
per cent of our overall caseload; today it stands at 44 per cent
of our overall caseload. If I was worried ten years ago I am very
very worried about it now. Equally, I am concerned that many of
the people who we used to see on benefits and we now see in work
are in the same poverty or similar poverty and at times even worse
and that is a serious concern. The making work pay is apparently
not working for many people.
Mr Mallon: I would like to agree
with what John has said there and also point out that credit union
is an ethical provider of financial services. We are working towards
a banking services project offer or a banking account to all our
members which will be of low cost. That is something which we
recognise as being very important to us as credit unions, to be
able to provide such a service because we do see some of the problems
for those on lower incomes with the present services supplied.
Q686 Chairman:
What do you think are the main factors which contribute to social
and financial exclusion and pushes people into poverty in Scotland?
Mr Dailly: I think the problem
we have got is we have got marketing companies that are fuelling
a buy now pay later culture and that then enables the financial
services industry to lend irresponsibly. It seems to me that if
people do need money in society, we need to manage that. The question
is what is the balance at the moment in terms of regulation of
the financial services industry? I would suggest to the Committee
that the pendulum has to swing more towards public protection
for ordinary citizens because I think what we have seen, for example,
with the bank charges situation in the UK where people are being
penalised, that whole sector generates about £7 billion to
the financial services industry, and it is the most vulnerable
people in society who get hit with bank charges. I think that
illustrates that the financial services industry, if left to its
own devices, is not able to be responsible enough.
Ms McPhee: Obviously I would agree
with what Mike said, but, also, although consumer debt is the
largest issue of debt with CAB clients, I think that hides the
fact that people are taking on loans to supplement incomes. They
are using credit cards, et cetera, to help with utility bills
and rent arrears and things like that, so although consumer debt
is the biggest area, it is often masking other things as well
and it is about income levels.
Q687 Chairman:
Obviously there are people who are lending money illegally and
charging very high interest rates and then there are financial
institutions as well. Do you think both are contributing factors
to poverty or are illegal money lenders more dangerous than the
legal financial institutions?
Mr Dailly: I do honestly believe
that the banks in the UK are much more dangerous than illegal
money lenders. I say that advisedly because I spend a lot of my
time in bank charges cases which we provide as a free service
across the UK online. Something like one million people have downloaded
our letters to get money back and we have helped people get back
millions. I have to say, the amount of emails I get from people,
to give a quick example, a working single parent with two children
who emailed me to say that in one week he got £200 in bank
charges, that is a typical letter, and in that one week when he
went to take out his wages, he said he did not have enough money
to feed his children and he felt suicidal. To me allowing that
kind of thing to happen in society on a grand scale across the
United Kingdom I think needs to be tackled.
Q688 Chairman:
Mike, I do appreciate the good work you are doing on behalf of
the vulnerable and on behalf of the weakest people in our society
to get money back from the banks. In fact, a number of my constituents
have told me that they have managed to get money back just because
your drafted letter was sent to the banks, thousands of pounds
have come back to the people. I think we would be interested later
on to know more about your company.
Mr Mallon: I think a lot comes
down to responsible lending, no matter who the provider is, whether
it is a bank, a credit union or whatever, that the individual
is properly discussed with and their affairs are looked at, and
if it is not a loan which is appropriate, they are referred to
someone else for advice and support, rather than getting money
out there to earn an income from that money. As a lender you have
to do that, but it is making sure you do that responsibly. Sometimes
giving a loan can be more of a problem to the person than solving
a problem.
Ms Gaffney: What you are saying
about responsible lending is what I would have thought would have
been respectable lenders, for example banks, and what we are seeing
is banks offering people consolidated loans when clearly the person
is in seeing them because they cannot pay the loan they have got,
so offering them another loan is increasing their debt. The other
side of that is, and let me give an example, I had a gentleman
in who wanted us to help him with a number of debts but he had
fixed his bank loan himself, he said, "I've negotiated that"
and he thought the bank manager was great. While we were looking
at that negotiation, what the banks had agreed was that he pay
£20 a month, what he did not realise was he was paying £22
interest a month on that, so in actual fact what was happening
was his debt was increasing by £2 per month, and he had been
paying it for a year and a half.
Mr Patton: I do not have the expertise
in debt which other members of the panel will have, although we
do see in credit union quite a few people who come to us and very
often we cannot help them because credit union is not a Panglossian
panacea for the causes of debt, it is simply something which can
help some people who have debt. I hope the Committee in the generality
of things is not merely going to look at the symptoms of debt
and that you will also be looking at the causes of debt. It seems
to me that they are much wider than what bank charges are or what
interest rates are. I think the distribution of wealth is something
also. I was a head teacher of a school in 1985 in Tullibody in
Clackmannanshire and I had moved from another school where I was
deputy head only about a mile and a half away, but I was struck
by the difference in the composition of those two schools. In
the second school, which was only a mile and a half away, 85 per
cent of the children were on free school meals, a very positive
indicator of a high level of poverty, and there I found all the
social conditions which are associated with poverty. A little
girl with very low self-esteem came in one day and the staff and
I tried at every opportunity to raise her self-esteem, very often
in very casual ways, and on this occasion she was wearing a pair
of patent leather shoes and I admired her shoes and she said to
me, "I got those from the Tally Man". I thought the
Tally Man was dead but he was obviously alive and well and living
in Tullibody and is still living in Tullibody. The point I am
trying to make, Chairman, is in the 20 years since I was appointed
to that school—I am no longer there, obviously—I do
not think conditions have changed all that much. I suspect—and
this is purely anecdotal—that there are similar situations
right across Scotland. I was once President of the EIS and on
an educational basis I visited a wide range of areas within Scotland
and I came up against these pockets of deprivation again and again
and again. On the point about interest rates, if our friends in
the press contact me, they usually want to talk about loan sharks
because loan sharks are sexy and dramatic and make good headlines
in the Daily Record, but I suspect from what I see in credit
union that Home Credit causes far more damage to many Scottish
citizens, it creates a cycle of debt, it traps them in a cycle
of debt and it is charging them, by their own admission on their
website, 175 per cent plus. Indeed, a report from the CAB recently
pinpointed that in a lot of cases it exceeds 175 per cent and
may range from 200 to 500 per cent and that creates a pit of despair
which those people find difficult to escape from.
Q689 Mr MacNeil:
A point of clarification. What you are saying here to the Scottish
Affairs Committee in Govan, in Glasgow, is that the biggest problem
with indebtedness is not loan sharks as such, but there is a bigger
great white shark of lending and that is what are called bona
fide groups operating illegally and are contributing more to poverty
than the typical loan sharks?
Mr Dailly: Indeed, as John rightly
says, you could be trapped in that cycle. The moment you get into
very expensive credit, it is very difficult to ever get out of
expensive credit. The difficulty is when you start making defaults
on some of your payments, what happens is you then get these incredibly
punitive charges, £39 per letter in charges, so you are in
this cycle of debt, you are getting charges added to it and if
you get lawyers taking you to court, you get court expenses and
you can suddenly discover you are on a downward spiral.
Q690 Mr MacNeil:
In your experience of the Govan Law Centre, which organisations
are the worst offenders?
Mr Dailly: There are so many offenders.
Q691 Mr MacNeil:
Give me three?
Mr Dailly: You have got particular
problems with the consolidation loan market, the adverse credit
market, Welcome Finance, I Group Loans, Black Horse, these are
the sorts of organisations which we come across quite a lot. Then
in the mainstream sector, I have to say that every bank, whether
it is the Royal Bank of Scotland, the Bank of Scotland, Lloyds
TSB, HSBC, we could go on and on and on, they are all involved
in exploiting vulnerable people.
Q692 Ms Clark:
Yesterday we were hearing about the Provident and I think their
credit levels are around about 177 per cent, and Loretta has already
made mention of credit levels of 175 per cent plus, so what kind
of organisations, other than Provident, are out there targeting
people with that kind of interest level?
Mr Dailly: I think I need to be
more much clearer, in that there are so many scams involved in
this sector. What I am trying to say is it is every financial
institution which is involved in this, it is so widespread that
nobody notices it because we have assumed it is normal. To give
a quick example: PPI Insurance, which is Payment Protection Insurance,
I think is going to be the next big scandal in the UK. What happens
is, to give a typical example, somebody goes to take an unsecured
loan of £20,000. They will typically be sold this PPI Insurance
with it. That may be £4,000 or £5,000. That is added
on to your loan, so you then borrow £25,000. You then get
into difficulties financially and you discover that the PPI policy
is not worth the paper it is written on and it has got more holes
than a piece of Swiss cheese, so you cannot claim on that. You
have effectively ended up borrowing this huge sum of money, the
policy is no use, you end up being taken to court and you may
well be looking at bankruptcy and losing your house and so on
and so forth. We have got different scams operating in the UK,
and I think it really is a matter for Westminster to tackle these
scams.
Ms McPhee: In terms of what you
were saying there about banks, you are not always taken to court,
what then happens is you are in heavy debt with all your charges,
your interest and your PPI payments, so they then role it up into
another loan for you. Again, all of that is being then rolled
up into a loan which you cannot afford to pay, so it continues.
It is the main banking institutions that do that frequently. They
are not supposed to do that in terms of the debt collection guidance,
they are not supposed to force consolidation loans upon you, but
it is something which we see, it is endemic. The other thing too
is Home Credit in that they do something similar like that. There
are advantages in Home Credit in that the charges are all upfront.
You have got all this interest, but if you start defaulting you
do not get added-on interest, so that is attractive to people
on low incomes because they know where they are, even if they
are paying this huge amount of interest. Where the problems start
again is you have not paid off your loan fully, so you then borrow
more money which then pays off that bit of the loan and you are
constantly doing that. That is what makes you end up in this terrible
cycle and you suddenly end up owing far too much money and you
are also getting confused because you may be running three or
four different loans from different credit companies.
Q693 Mr MacNeil:
What you are saying is you would be better going to court earlier
than having Home Credit?
Ms McPhee: Again, it depends on
the circumstances, sometimes you would. If you were taken to court
it might give you the ability to then make yourself bankrupt,
but the Home Credit industry do not take you to court, they will
wait until you have got more money to pay it back.
Q694 Mr Davidson:
Can I go back a step because I think, in particular, Susan remarked
that it was lack of income which led people into poverty and so
on and so forth. Part of the Government's strategy has been getting
people into work and seeing work as the best route out of poverty.
I think it would be helpful if you gave us clarification as to
whether or not that is working and what the impact has been of
the national minimum wage. Certainly in this constituency unemployment
has come down by over 50 per cent and long-term unemployment down
by 80 per cent and so on and so forth, and the assumption, therefore,
is not that the sun shines every day, but these people are a great
deal better off than they were before. I think it would be helpful
if you clarified whether or not in your view that was the position.
The second is for those who are not in work. Is it simply a question
that benefits are inadequate, or is there something else which
we are, perhaps, missing that is keeping these people in poverty?
Ms McPhee: I would like to get
Loretta to answer that, but if I could add one thing before we
do that. In terms of our debt research, half of the people who
were in debt were in work and yet their incomes were on average
£801 a month. In fact, a quarter of our debt clients have
incomes of less than £400 a month. That will give you some
kind of indication of what I am talking about.
Q695 Mr Davidson:
Presumably in full time work the national minimum wage will be—
Ms McPhee: They are not necessarily
in full-time work, they will work, they will be in paid employment.
Q696 Mr Davidson:
Sorry, can I clarify that. They will then be eligible for Working
Family's Tax Credit and they are meant then in these circumstances
to be much better off?
Ms Gaffney: If I could take up
the point because it is one of my concerns. I think you are right,
for many people obviously work is what lifts people out of poverty,
but it has got to be decent work and decent pay. If it is not,
to subsidise that we have got Working Tax Credits. The difficulty
is the poorest people are in social housing and they are paying
their rent and their council tax and the Working Tax Credit comes
in as a form of income, so it is means-tested. They go and they
get the job at the minimum wage, they get it topped up with the
Working Tax Credit and then they find that they get no housing
benefit and no council tax, therefore they have got to pay for
their house, their council tax, their travel to work, their lunches
and they are either worse off or the same. I did a calculation
before I came just to prove that point. If you are talking about
a person who has got the minimum wage, works 37 hours, by the
time they pay their rent, their council tax, their travel to work
and their lunches, they are left with about £80 a week and
that is to buy their food, their clothes, their household goods
and have some leisure time.
Q697 Mr Davidson:
The DWP have told us, and have told me on several occasions, that
they can do in-work calculations for people which demonstrate
that they are always better off in work. Are you saying that is
not true?
Ms Gaffney: What I am saying is
we do get a considerable number of single parents who take part-time
work, who have had that calculation from the DWP, but have not
been told about the reduction in their housing benefits. So, yes,
when you put it down, "There's what your salary will be,
there's what your Working Tax will be, that looks good in comparison
with your benefit, but then we have got to further that calculation
and take off the fact that ---".
Q698 Mr Davidson:
Have you raised this then with the DWP? I am presuming CAB have
discussions and links with the DWP, has that been raised with
them, and what is their response to that?
Ms McPhee: We meet with them quite
regularly, but more on the operational bit which also causes a
great deal of problems.
Ms Gaffney: To be fair to the
staff, I am not sure, but I would think that the staff have probably
got targets to get people into work, I would assume, so they will
be under pressure to do that.
Q699 Mr Davidson:
They are telling us quite categorically that they demonstrate
to people worked examples which indicate that they will be better
off in employment. You are saying that is not true because it
does not include council tax and housing benefit, which presumably
is a much greater barrier in Glasgow on the basis that the rents
and council taxes here are much higher than anywhere else on the
basis that there is less public support for the councils.
Ms Gaffney: As I say, your average
rent in Easterhouse, for example, would be something like £50/£60
a week and your council tax, so if you are not getting housing
benefit, that is coming right off your salary, the minimum wage,
and your Working Tax Credit.
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