Business, Innovation & Skills Committee - Minutes of EvidenceHC1649

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Oral Evidence

Taken before the Business, Innovation and Skills Committee

on Tuesday 13 December 2011

Members present:

Mr Adrian Bailey (Chair)

Paul Blomfield

Katy Clark

Julie Elliott

Rebecca Harris

Margot James

Ann McKechin

Mr David Ward

Nadhim Zahawi

________________

Examination of Witnesses

Witnesses: Tony Hobman, Chief Executive Officer, and Lesley Robinson, Director of Corporate Services, Money Advice Service, gave evidence.

Q141 Chair: Good morning, and thank you for agreeing to answer our inquiries. Whilst I think you are fairly well known, could I just ask you to introduce yourselves for voice transcription purposes? I will start with you, Tony.

Tony Hobman: I am Tony Hobman. I am the Chief Executive of the Money Advice Service.

Lesley Robinson: I am Lesley Robinson, Money Advice Service, Executive Director responsible for our debt co-ordination programme.

Q142 Chair: Thank you very much. We are obviously time constrained. You will be asked a number of questions. Do not feel that you both have to answer every question if you feel that you have nothing to add. Can I just start off? It was put to us by Martin Lewis that MAS is just basically replicating what is already out there on the market, web-based debt advice, and that you spent all your time building up your brand rather than anything else. What is different about the service that you are providing from other existing providers?

Tony Hobman: When Parliament set us up last year, it was with a remit to help people better understand and manage their money, so very much in the preventative, generic advice space, not the debt advice space. The context of that was that there are low levels of financial capability and literacy in the UK, and there is a huge gap in provision. We know that something like half the adult population is unaware or unsure of where to get unbiased, free money advice.

Fewer than one in five people have someone they can trust to confide in about money matters, so there is still a huge gap in provision for our service, which is the preventative money advice service. In order that people know who we are, can trust us and use us, we have to market our services. It is only latterly that we have been asked to undertake the co-ordination role for debt advice for people in crisis, and that is a complementary but additional and different task.

Q143 Chair: Would it be fair to say that originally you were conceived as a preemptive financial education service rather than, if you like, a remedial service?

Tony Hobman: Yes, absolutely, in a nutshell.

Q144 Chair: But now you have had these other roles grafted on. To a certain extent I think the answer to that question preempts what would have been my next question. Given the fact that Citizens Advice is well recognised as a debt advice service, what are you offering over and above Citizens Advice, and why do you not just work through them?

Tony Hobman: Part of the answer is that we will work through Citizens Advice. The co-ordination role that we have been asked to undertake, with the support of all stakeholders in that debt advice space, including Citizens Advice, is a reflection of the fact that standards are uneven. The debt advice landscape is fragmented and people do not know where to turn. We can provide that objective overview and help work with those who do provide debt advice, including Citizens Advice, to come up with a more sustainable longterm model, including the funding for that. They do have a very good brand, and it is absolutely not our intention to subsume it or dilute it in any way.

Q145 Chair: I certainly can see the potential for having a greater degree of co-ordination. Can you elaborate a bit further on what you are looking to do?

Lesley Robinson: Sure. As part of the work we are doing, when we take this over in April 2012 our project is to develop a model of debt advice co-ordination that will be sustainable and build on the good practice that already exists in citizens advice bureaux and others. We are doing some research at the moment, as the Committee is probably aware, and there are a number of areas that we are looking at and working with our stakeholders on. We are very sure that there should be a single set of agreed outcomes for debt advice and that consumers should know where and when to get effective debt advice.

There should also be an effective triage process, where consumers can come in and be directed to the right sort of debt advice, and that should be multi-channel-a combination of digital, telephone and face-to-face services. There should also be a set of approved tools, so that the providers give consistent outcomes and there is an effective way of measuring that. Standardised data collection and the effectiveness of measuring outcomes are missing at the moment, and face to face will be part of that provision.

Q146 Nadhim Zahawi: Thank you very much. If I understand it correctly, you are just co-ordinating advice, or will you be providing both face-to-face and webbased advice?

Tony Hobman: In this preventative space, we are already providing advice across the web, telephone and face to face. We already and will continue to hand people who use our services over and on to the debt advice advisers if that is appropriate. The more people that we see and the more successful we are in the preventative space, the more people we will not just route into the right debt advice community but in a sense prevent getting there in the first place, so in a sense we have a dual function.

Q147 Nadhim Zahawi: I understand that. You are providing advice as well as co-ordinating.

Tony Hobman: Yes.

Q148 Nadhim Zahawi: There is a problem with that, in the sense that you opened by saying that there is confusion already in the landscape of debt advice. Would you not just be adding to that confusion? You will be competing with the advice services already out there, including commercial debt management companies. Back to your point about building a brand, you are sending two different messages. You are either a co-ordinator or you are providing advice. The landscape is already confused. Are you not essentially adding to that confusion?

Tony Hobman: I do not believe so. Coming back to my earlier point, in any event we have this huge gap in advice for preventative money advice, and we need to fill that. The more successful we are at doing that, the less likely it is that people fall into the other camp. Having a high profile and being successful at one task does allow us to channel and route people more effectively than has been the case before.

We are at the early stages of developing this model, so we clearly understand that there are those risks of confusion. We absolutely do not want to add to the fragmentation and confusion that exists currently, so we will be working with all the stakeholders in the debt advice space to ensure this is not an issue, and that it ends being greater than the sum of the parts.

Q149 Nadhim Zahawi: If by the end of the process there is research to show that you have added to the confusion rather than helped it, would you then revisit your strategy?

Tony Hobman: Certainly we would, but I think the research we have already done has not highlighted confusion between generic advice and debt advice, just confusion within the debt advice community.

There are strong brands out there already. In fact one of the challenges, for example, with Citizens Advice, which has an excellent brand, is it is almost too well known. People will tend to head straight for face-to-face advice when that might not be the best means for them of being helped. They may be better off using the telephone or some form of self-help. That level of confusion far outweighs the possibilities or the challenge of some confusion between preventative advice and debt advice.

Q150 Nadhim Zahawi: If CAB is almost too well known, why not just utilise it? You mentioned that you were going to be working with them. Why not actually focus on that rather than trying to build a competing brand?

Tony Hobman: The brand that we are building we say is not competing, because it is a generic advice space. We are trying to help all of those who are in the debt advice space to channel their business more effectively. We know that something like 2 million to 3 million people actively seek debt advice at the moment, and the system has the capacity to help maybe only 2 million of those, and there is probably another 3 million or 4 million who have a latent demand for debt advice.

The real need is to ensure that people coming into the debt advice system are triaged more effectively, as Lesley said, than they currently are. Whether they first hit the phone button for Citizens Advice or to the National Debtline or CCCS or wherever, there is a lot that can be done in channelling that business, which means that the capacity will be greater.

Q151 Paul Blomfield: I wonder if I could probe a little bit more on the nature of the advice, taking up Nadhim’s point. I held a roundtable of debt advice agencies in my own constituency, and one of the concerns that they have is that you have an overoptimistic expectation from the triaging process of the number of those needing debt advice who can be dealt with through webbased support. What is your assessment of that model in terms of the balance between web, telephone and face-to-face advice?

Lesley Robinson: It is interesting. As part of our ongoing research, the results of which will be published in the new year, a couple of things are coming through in our early findings. In terms of people who have used or would use face to face, the propensity to insist on nothing but face to face is actually very low. People are prepared to use other forms-telephone or digital.

Q152 Paul Blomfield: What is your assessment of whether they are right? When people get into debt, there is a level of wanting anonymity, but effective support can in many cases only be delivered face to face.

Lesley Robinson: Yes.

Q153 Paul Blomfield: What is your assessment of what people need rather than what they want in terms of appropriate support?

Lesley Robinson: That is exactly what we are currently looking at, the need point as opposed to the want point. I cannot give you the answer to that because that is still research in progress, but it is part of what we are looking at so that it can be measured and assessed effectively going forward.

Tony Hobman: I think our sense and indeed that of the debt advice community itself, from their experience of dealing with people through all these channels over a number of years, is that there is a case for a substantial rebalancing. I understand that something like only 150,000 people of those millions that we talked about are currently using any form of internetbased help. That instinctively feels far too low. There was a recent research study that asked a number of people how they felt about the face-to-face advice they had through the projects, and 25% said they would prefer to have been dealt with through another channel. That is people who actually went through it, so there is a very strong indication that there is lots of leeway to change the distribution of channels.

Q154 Paul Blomfield: Could I ask one further question? Regarding your organisational model to support the sort of service that you anticipate you will be providing, I understand you are going through a restructuring process at the moment and shedding significant numbers of staff. Could you tell us more about that?

Tony Hobman: Yes, the restructuring at the moment is in relation to our preventative advice work; it has no bearing on the work we are doing in co-ordinating debt advice. We have a dedicated team led by Lesley doing that and will continue to do so. On the preventative side we have reviewed, as we said we would in this year’s business plan, our own delivery channels, products and services so that we can reach far greater numbers of people more relevantly with the sorts of tools and services we think they need. So we are restructuring in order to fulfil that demand.

As I say, it has no bearing on what we are doing on debt advice, and we are maintaining our network of face-to-face advisers. We have over 100 face-toface advisers across the country giving money advice. We have no plans to change that, and indeed we will be continuing with our telephone channel as well.

Q155 Paul Blomfield: Just on the restructuring in relation to core staff, it has been suggested that you are cutting from around 150 to around 20?

Tony Hobman: No, by no means. No, we are seeking to restructure from about 140 to 80.

Paul Blomfield: 140 to 80.

Tony Hobman: Not to 20.

Q156 Paul Blomfield: Okay, but nevertheless a very substantial cut. Are you confident that your deliver model is going to change substantially so that you are able to still provide the relevant services?

Tony Hobman: Yes, absolutely. I can assure the Committee that is the case, yes.

Q157 Nadhim Zahawi: How will you measure success? What are your KPIs for measuring success?

Tony Hobman: We are the first to admit that we have had fewer and less adequate ones than we would have wished thus far. We have not had the MI to report in some cases. We will be measuring both the use and reach of our tools as well as the underlying change in people’s capabilities, so we will be doing a significant baseline research study next year to measure where people are or are not in terms of their financial capability. Then over time we will measure the difference between those who use our services and those who do not, hopefully to see a fundamental change in behaviour and mind set.

Q158 Nadhim Zahawi: We look forward to seeing that. You mentioned in your submission you were considering a levy on the credit industry to pay for debt advice. How will this work in parallel with the Fair Share model used by the Consumer Credit Counselling Service and Payplan?

Lesley Robinson: The first thing to say is we are obviously mindful of the existing Fair Share model, which has contributions of around £40 million a year, and there is no way that we are intending to displace that funding. In terms of the face-to-face projects that we are funding next year, that is additionality of service, with the services being provided in addition to those of the Fair Share model. It is not in any sense replacement or duplication, which I think is a key point. We believe that approach will complement, if you like, the work done by those providers funded by Fair Share, like CCCS and Payplan.

Q159 Nadhim Zahawi: Just on that point. What does "additionality" mean?

Lesley Robinson: Well, primarily the CCCS and Payplan are funding telephonic and digital channels.

Q160 Nadhim Zahawi: Which you are also doing, so it is replication of that.

Lesley Robinson: No, because what we are funding next year for debt advice is face to face as opposed to the preventative side.

Nadhim Zahawi: Right.

Lesley Robinson: The other point to make is that we have obviously been in consultation with existing stakeholders, including the larger financial services. They are fully aware of what we are doing and are supportive of it. They do not see funding the two as an issue.

Tony Hobman: We see next year as a transitional year, in that we are ensuring there is maintenance of the face-to-face work currently funded by BIS. What has been delivered thus far is in the order of 100,000 face-to-face advice sessions, and indeed we hope to increase that because we think more efficiency can be got out of the system, as well as the longer-term development of the co-ordination work and the advice model that we need to work with the industry to create.

Q161 Nadhim Zahawi: That is similar to the Payplan and the Consumer Credit Counselling Service in terms of the online and telephony stuff?

Tony Hobman: Yes, all of the other provision that is currently funded by Fair Share-the online and the telephone-will continue to be funded, as far as we are concerned, by the industry. There is no intention to displace or diminish that. We need to ensure the funding continues for the face-to-face work next year, which BIS is currently funding, as well as putting this long-term model for debt advice in place, which we hope to introduce with the debt advice community towards the back end of 2013.

Q162 Ann McKechin: Just very quickly, when you are talking about the debt advice community, is that solely the not-for-profit and charitable sector, and not the private, commercial debt-management companies in any way?

Tony Hobman: Yes, that is correct.

Lesley Robinson: That is correct.

Tony Hobman: We have an interest and a concern about that as you would imagine.

Q163 Ann McKechin: The levy idea would simply be the not-for-profit sector?

Tony Hobman: Yes, indeed, yes.

Lesley Robinson: Yes.

Q164 Mr Ward: Would your advice include referrals to debt management companies or not?

Tony Hobman: No, not the commercial feecharging companies. As it stands, it would not. Under the model that is currently operated, where we do have concerns about the degree to which it is frontloaded, the additional costs for consumers and not least the fact that there are many absolutely suitable free alternatives, it is not something we currently see we would recommend to users of our service.

Q165 Mr Ward: They have defended themselves in terms of the justification for the charges and interest rates and so on, but you are still not convinced with those arguments?

Tony Hobman: Not yet.

Lesley Robinson: Not yet.

Tony Hobman: We see that there is more that could be done.

Q166 Mr Ward: You seem to be a more definite "no" than a "not yet".

Tony Hobman: We think there is a place for commercial provision, and we think there is a case for more adequate selfregulation. We have probably not seen it yet to the degree we would like. We welcome the OFT’s efforts to be tougher on the sector and see how that pans out. I think that is important. There are a number of things that can happen that might make it a better place, not least that we help the free debt-advice community to have a much higher profile, so the consumers can see that is a better option for them in many cases in the first place.

Q167 Mr Ward: Your remit is for financially educating the population. How will you go about doing that? Obviously you cannot take on debts until you are 18, and yet a lot of preventative work needs to happen before then. How do you go about fulfilling that remit?

Tony Hobman: The work we do on the preventative side involves products and services that would be relevant for people all the way down to the age of 16, I would say, so absolutely at the point at which they are making a transition into the world, whether that is through further education or not. We do have and are continuing to develop a suite of tools that are relevant to them. We believe that all our products and services have an educative value, and, as I said earlier, the real task is to deal with the millions of people who are out there now in the world dealing with financial problems.

We do also have a significant interest in what happens in schools. We support the work of the APPG and the report that it issued. We also are now embarking on an important piece of strategic oversight to map all of the many initiatives-particularly those that the financial services companies have got going-in schools to understand what the longer-term benefits and worth of those is, where there are gaps and overlaps, as well as doing benchmarking of work around the globe and in other areas, such as health and drugs, to see whether there is anything to be learned from the programmes of work that have gone on there that can be crossed over into money teaching in schools. There is some important work we can do there to help in that educative space for young people as well as grown-ups.

Q168 Mr Ward: Will there be co-ordination, because you have not got many of the banks, off their own backs, who work in schools?

Tony Hobman: Indeed, yes.

Q169 Mr Ward: And with proliferation the danger is always the confusion. Will you be seeking to co-ordinate that?

Tony Hobman: Yes, absolutely. There is strong support. As you say, there is a lot of work done, often on the back of their corporate and social responsibility budgets, which is great, but it is true to say that there is duplication or there will be gaps, and we need to have probably more evidence of what the long-term value of some of those educational initiatives are. I do not think that really exists yet, and that is something that we are keen to do.

Q170 Mr Ward: What is your understanding of what is happening to the financial inclusion from debt advice services?

Lesley Robinson: In terms of the projects themselves?

Mr Ward: Yes.

Lesley Robinson: As you have gathered, we are funded and it is taking them forward next year to the full funding that they have had this year. But as Tony mentioned earlier, we are looking to try to increase efficiencies where we can and take some of the very best practice and spread it across the funds, looking to increase reach from around 100,000 to 150,000 as our target next year, but we are continuing to fully fund those projects.

Mr Ward: I think we have covered the face to face.

Q171 Chair: Yes, you said basically you will be referring people to not-for-profit organisations and so on, and working with them. Would you regard it as, if you like, a success if there was evidence that with-profit debt management companies began to struggle and even go out of existence, and do you think there is any possibility of that?

Tony Hobman: I certainly think that one of the most effective changes in the marketplace would be if the profile and the value of the not-for-profit and free sector was so clear to consumers that it became a natural first call for them. If as a result of that the market took its course, then that would seem to me not to be a bad thing for consumers.

Q172 Chair: Do you think that should be an objective?

Tony Hobman: Yes, I think that is fair to say. There is such a potential worth of the free debt-advice community, so why shouldn’t everyone ultimately be served by it if we can help to free up the capacity and manage the channels in the way that we have said we would like to?

Q173 Ann McKechin: Just one final question. It has been reported that your current salary is approximately £350,000 per annum. Would you wish to make any comment on that to the Committee?

Tony Hobman: A simple correction: it is £250,000 per annum, but there are some benefits beyond that. I believe that we have been tasked with something that, if we do it right, as we intend, will make a hugely significant difference to millions of people’s lives. If we are successful, as we intend to be, I hope that all of the costs associated with that would be considered to be good value for money.

Q174 Chair: It is something like £100,000 more than the Prime Minister, which does seem a very large sum for what is, with the greatest respect, a relatively small organisation, albeit a very important one.

Tony Hobman: Then I feel hugely incentivised to do it well.

Q175 Margot James: Maybe I misunderstood something, but I find the distinction between preventive advice and debt advice rather hard to grasp; it seems to be rather a grey area. Are there not people who seek what you might call preventive advice who are already in debt? What would be the incentive for anybody who was not to even seek preventive advice, unless we were talking about schoolchildren, students and young people?

Tony Hobman: There is a demand for preventative advice, and that is part of the reason we have all of the tools and services available. Indeed, for example, we launched our new financial health check just earlier this year, and already 300,000 people have visited it. Clearly there is a need for people fundamentally to get their finances in order who are not yet in crisis debt. It is also true that people who may need help with some of the basics of, for example, budgeting or planning for the future, or indeed maybe meeting some particular life event that is giving them a financial issue, also need some form of crisis debt advice.

We are already able to pass them very quickly and straightforwardly on to organisations that can help them, such as Citizens Advice or CCCS or others. We can do the fundamentals first, and also be capable of passing people on to the specialists that they might need to see. As I say, this is for debt advice, but it could even be for more sophisticated financial advice, in which case there is the fee-based community as well.

Q176 Chair: Any further questions? Thank you. That was very helpful. We will monitor your progress very closely and may well see you again if we decide it is appropriate to do so.

Tony Hobman: Thank you, Chair.

Chair: Thank you, and we will call the next panel.

Examination of Witnesses

Witnesses: Vivienne Dews, Executive Director, and David Fisher, Director, Credit Group, Office of Fair Trading, gave evidence.

Q177 Chair: Good morning, and thank you for agreeing to come before the Committee. Could I just ask you to introduce yourselves for voice transcription purposes?

Vivienne Dews: Yes, I should say I have a slightly croaky voice; I hope I am not spreading too many germs around.

Chair: I think we are at a safe distance.

Vivienne Dews: Apart from my colleague, I think. I am Vivienne Dews. I am an Executive Director at the Office of Fair Trading, and my responsibilities include the consumer credit work.

David Fisher: I am David Fisher, and I am the Director responsible for consumer credit at the OFT.

Chair: Thanks very much. I will just repeat what I told the previous panel: you do not both have to answer every question, but obviously if there is something you feel you need to add to, please feel free to do so. I will open with Julie Elliott.

Q178 Julie Elliott: The Office of Fair Trading examined the high-cost credit market in 2010 and reported that in some respects the markets for high-cost credit work reasonably well. Do you think if that was repeated today the response would be the same, and particularly would the level of complaints from consumers still be low?

Vivienne Dews: We have seen the number of complaints go up since then. They are still relatively low compared with complaints we measure-the ones we see-but there clearly are more causes for concern in aspects of the high-cost credit market than there were at the time we did the review. That probably reflects the growth there has been in payday lending since that time.

Q179 Julie Elliott: What concerns you most about the high-cost credit market around its growth and the way it is operated?

Vivienne Dews: I think the key concerns fall into two areas. One is around transparency. A lot of it is around the very quick turnaround credit that we see more of, where credit is granted in 15 minutes or so, online or by text. We are concerned there about transparency. It is not a market in which consumers shop around a lot, and we are keen to be sure that they understand what they are buying, what they are getting, what the terms are-that they can compare the cost of products, particularly the total cost of credit. Very short-term credit probably gives them a better idea of what they are paying than an APR will do.

We are concerned about whether, in those quick turnarounds in particular, consumers are being given adequate explanation of what they are getting and whether the lender is assessing the affordability of the credit that is being granted and whether it will push the consumer into unaffordable levels of credit. It is in the light of those concerns that we are planning to do a compliance review in the new year of whether the high-cost credit providers are complying with the guidance we have on how highcost credit or any line of credit should be granted.

David Fisher: I would just add one other point of concern, which is the point about forbearance. When people take out loans, as they sometimes do, and get into financial difficulty, we would expect the lender to exercise forbearance and make proper allowance for the difficulty that the person has got themselves into.

Q180 Julie Elliott: Do you think they are doing that at the moment or not?

David Fisher: The picture is mixed. We do still have some concerns in that area.

Q181 Nadhim Zahawi: What are you currently doing to monitor the marketplace?

David Fisher: We have quite an active monitoring role. It is essential that our information is as up to date as possible to allow us to make sure that when we are going to intervene in the market we are doing it on the best available information. We have a variety of sources of information that we use. Incidentally, we have fairly recently set up our own intelligence team.

Q182 Nadhim Zahawi: How big is that team?

David Fisher: It is about three or four people, part of a slightly larger policy team, so it is quite a small team. We will do a variety of things, and some of them may seem blindingly obvious to you. We will monitor the media. There is a lot of media coverage. We will engage with external stakeholders, for example consumer groups. We will look for research reports, which are obviously a very valuable source of information. We look at complaints and enquiries made to the Office of Fair Trading, which is another very useful source.

The final thing I would mention is that we look at complaints data on a regular basis. In particular we are looking at the complaints data to the Financial Ombudsman Service and to the Consumer Direct Service, which we at the OFT are responsible for running.

Vivienne Dews: It is just worth adding that we do not at the moment routinely collect detailed data on the total shape of the market.

Q183 Nadhim Zahawi: You do not?

Vivienne Dews: We do not, and we do not think that would be particularly useful for our enforcement work. But we did recommend, as part of the Review of high-cost credit, that we should start collecting that, and the Government has recently said it would like us to do so, and we will work with BIS.

Q184 Nadhim Zahawi: You do not think it is useful, but you are going to collect it.

Vivienne Dews: It is useful for policy development, but it is not particularly useful for individual enforcement cases against individual providers. The reason we have not collected it in the past is because there is a burden on businesses about seeking that information from them. But in the light of the Review of high-cost credit and the Government’s response to it, we will work with BIS to work out how best to collect those data so there is a better picture of these markets.

Q185 Nadhim Zahawi: And the businesses are complaining that it is a burden on them to be able to provide those data for you?

Vivienne Dews: I think the concern that it was a burden was essentially our concern. There is a general issue that you do not want to impose undue information provision requirements on businesses unless there is a good reason for doing so. We concluded there was a good reason for doing so in these markets.

David Fisher: I think how important it is to gather the extra information depends very much on the sector that you are dealing with. As Vivienne has said, we have recognised and made the recommendation about gathering additional information in the high-cost credit sector. I think you make a good point about burdens on business, and it might be useful for you to know that we license something like 84,000 businesses; one-third of those are sole traders and something like two-thirds of them employ fewer than 10 people, so it is quite an important point to appreciate about the population, if you like, that we regulate.

We do have to think quite carefully about burdens on business and balancing that against the benefit that we think we will gain from requiring companies to provide this information. It is also perhaps worth noting that in this respect we operate under a quite different regime, for example, from the Financial Services Authority and the FSMA regime, where of course it is an essential feature of that that they do require companies to provide information on a regular basis. The Consumer Credit Act regime does not operate on that basis.

Q186 Nadhim Zahawi: How many of your recommendations made in 2010 have the Government taken forward?

David Fisher: In whole or in part, there are a couple of the recommendations that we made. I could check that, but one of them was the point that Vivienne just made there about gathering additional information. I think it is also worth remembering perhaps that, in making the recommendations following that report, we were very clear to specify that they were only intended to target certain of the features of the market that we found.

There were other fundamental issues with the way the market operates for high-cost credit that are completely outside of the OFT’s remit, about which we could do nothing. You have been touching on one of them this morning, which is to do with degrees of financial literacy in the population as a whole, and yet another was to do with the provision and the supply of lowcost credit. Those are things that we acknowledge are major issues that the Government might want to consider how to tackle, but we are not in a position to make specific recommendations on how to address them.

Q187 Nadhim Zahawi: That was the second part of my question. Where do you think the Government should focus its efforts?

David Fisher: In that report we did specify those two very important areas where, if the market is to work more effectively than it does at the moment, you have issues both on the demand side, which is the ability of people to exercise influence in the market through their knowledge-through being financially literate-and we all recognise that is an issue across the country, and on the supply side, where there is the issue about where the supply of low-cost credit is going to come from.

Q188 Rebecca Harris: You have just touched on areas relating to Government, but in terms of your recommendations, where do you feel the Government should be doing more? Are you satisfied that the Government is doing enough?

Vivienne Dews: In relation to highcost credit-I have just checked the figures-we made six recommendations in the Review of high-cost credit. Two were not accepted, two partly accepted, and two fully accepted by the Government. Obviously we made the ones that were not accepted on the basis that we believe that those were the right things to do, but the Government, I am sure, has taken wider considerations into account. Two were not accepted: one about a price comparison website, and one was about wealth warning statements on advertisements.

Q189 Chair: Why did they not accept them, do you know?

Vivienne Dews: I do not think I know, but presumably it would be for the Government to explain why they did not.

Chair: That is fair enough. The Minister is in next.

Q190 Rebecca Harris: My other question is about what might be seen as the nominal cost of obtaining a credit licence; a couple of our previous witnesses, Citizens Advice and Consumer Credit, raised this with us. At the moment it is £500. Pretty much anyone, provided you do not have an obvious criminal record, can obtain a consumer credit licence. There seem to be no greater checks on whether you are really competent to run a business, so it is not a lot of money in terms of being regulated for what can be quite risky businesses. I wonder if you have any comments on that, or whether you think the cost should be higher.

Vivienne Dews: There are two broad points there. One is that we do operate checks. We look at it on a risk basis, so the riskier the business that you will be involved in, the greater the degree of checking. So although it may be true that we do not perhaps apply a huge number of checks to the credit activities of some people at the very nonrisky end, i.e. people delivering retail services, home improvements and so on, once we get into the riskier end, we are doing quite extensive checking, including through trading standards visits.

The other issue is about the level of resourcing of the regime. It is run on a selffunding basis. It has so far been run on the basis that we keep resourcing levels quite low. This is a matter that we agreed with the Government-to keep resourcing levels quite low. I think there is a debate about whether those resourcing levels should be higher, which would be met through an increased licence fee, in order that we could do more enforcement work. That is something that I think is a debate to be had with Government in the near future.

Q191 Rebecca Harris: I appreciate you said that many of these businesses were sole traders. For some of the larger companies, as a proportion of the business they are doing, £500 does not look very much to me, and there could be an awful lot in there that needs looking at. Are you recommending a change to that?

Vivienne Dews: Sorry, there is a third point, which is whether the fees should be differentiated.

Rebecca Harris: Yes.

Vivienne Dews: I think we consulted about that.

David Fisher: Yes.

Vivienne Dews: And then put that into abeyance, because there has been a broader debate about the broader future of credit licensing and where it sits within Government, so we did not pursue that at the time. We did not completely drop the idea, so I think there is a third point about more differentiated fees so that those who are at the higher-risk end, ones that essentially take more of our effort, might pay more money for their licences.

David Fisher: Just to build on what Vivienne says, I think it would be the case that all regulatory bodies would say, "If we had more resource, we could do more." I guess that is rather selfevident. Vivienne has explained the checks that we do in what we call the gateway. You are right that much of it is about fitness, which is essentially a question of integrity-trying to test whether the people we are going to give grants and licences to have the integrity to operate in the market. As Vivienne also explained, we also check for the competence of businesses. Could we do more fitness checking and particularly more competence checking as well as enforcement with additional resource? The answer to that must be yes.

Vivienne also makes a really good point, which is that at the moment the fee is effectively one size fits all. The only differentiation at the moment is basically whether you are a sole trader or not. If you are a sole trader, it is roughly £500, and for any other kind of business it is roughly £1,000. Would it be helpful to us to differentiate fees according to the nature of your business and market, and in particular the level of actual or potential risk that you pose to people taking out loans and other related services? The answer to that is yes.

Vivienne Dews: The other point that is worth bearing in mind is that the current credit rating is relatively new. The rules changed in April 2008. As we are on a fiveyear cycle, licences come up every five years, we are still working through some of the people; some people in the market had their licences before the current regime came in. Also there is quite a lot of developing with the new powers and abilities. We are still developing what we can do under the new regime, and learning how to operate the regime.

David Fisher: From 2008 to 2011, those powers the Government gave us did make a difference. They made a difference in terms of our ability to test competence and investigate companies, once licensed, that we have concerns about. They gave us more power to more proactively and effectively investigate those people: to visit them on their premises, to require them to provide information.

These are the sorts of powers that any effective investigation enforcement body really needs to have, so it was extremely helpful to us to have those additional powers. Some of those cases that we have been taking take quite a long time to work through, so that might help explain the comment about why it still feels to us like early days. You may think we have had these powers since 2008 and that is a lot of time, but the investigations can take a considerable amount of time.

Q192 Rebecca Harris: Presumably it must be better for some of the companies to find that they have been given a clean bill of health as well, which may impact on the ability to increase licensing fees.

David Fisher: Sorry, I did not quite understand that.

Q193 Rebecca Harris: In terms of increasing licensing, because it is partially in the industry’s interest to be given a clean bill of health as well.

David Fisher: Absolutely.

Rebecca Harris: If the company has been told they have been looked at, and that it was fine.

David Fisher: I have one other point of clarification, if it would help, on the licence fee. As Vivienne said, it is a self-funding regime; therefore, we have to follow the Government’s rules on such regimes. We set the fees, which are approved at ministerial level, to recover the cost that we expect to incur in delivering our responsibilities under the Consumer Credit Act. That is what we are required by law to do. We cannot set fees for any other purpose. For example, we could not deliberately set out to raise a fee on companies wishing to enter a particular sector simply to raise a barrier to entry, not that it is normally the OFT’s wish to raise barriers to entry into markets.

Chair: That is a very interesting point. First Paul indicated, then David, and I have a couple of supplementary questions as well, but they may be covered.

Paul Blomfield: Take David first.

Q194 Mr Ward: On another area, there was the suggestion of a large-scale adult education initiative. I just wonder what that would look like. Who would deliver it? Who would pay for it? How would it recruit? We have obviously been looking at the inclusion of financial advice, awareness and dealing with money issues in the national curriculum at schools. But how do you recruit people to this large-scale education initiative?

Vivienne Dews: Sorry, which suggestion in particular are you referring to?

Q195 Mr Ward: The one that I believe the OFT have made about this large education initiative.

David Fisher: To be clear, we did not make a specific recommendation on that. That was one of the underlying issues affecting the market that we said was specifically outside our remit. That was the point I made earlier about what we call on the demand side not enough people being financially literate. Our observation in the report about that was there is clearly an issue here that needs to be considered, but because that is completely and utterly outside our remit, we did not make a specific recommendation on it.

Q196 Mr Ward: It just seems, amongst a list of others, as being quite nice to do, but I just wonder about the deliverability. A cultural change in society and individual consumers’ approach to credit. Yes, but how?

David Fisher: Again, exactly-that is the question to which the OFT is not in a position to give a specific answer.

Vivienne Dews: This is from the Review of high-cost credit. What we made clear was that a lot of the issues were well outside the OFT’s remit-the issues around credit and debt. So there were things within the market we could and did comment on, but many of the things that concerned people were not within our remit.

Q197 Mr Ward: They may not be within your remit, but unless they are addressed, how many of the things that are within your remit will be successful?

David Fisher: We see the low levels of financial literacy. At the OFT with our responsibilities we actually see the effect of that. We see consumers being disadvantaged by, sometimes, unscrupulous businesses providing them perhaps with loans that are not suitable for their needs, and consumers making choices without being fully aware of the implications, and in particular without being aware of the risks that they are potentially entering into. We see the evidence of that day to day in the investigations that we do and the enforcement action that we seek. That experience would suggest to us that any successful attempts to raise general levels of financial literacy would inevitably have a beneficial effect on that. The initial question that you raise about how one would go about doing that is something we are not in a position to answer, but we would expect to see the beneficial effects of that.

Q198 Mr Ward: I suppose what I am trying to delve into is how crucial these things are. Many things could be done, but what is the most important thing that needs to be done? You are suggesting that you are capable of doing many things, but how successful will they ultimately be when there is still this massive gulf in knowledge, experience and understanding of the system?

Vivienne Dews: Clearly, were there much higher levels of financial literacy, many of our efforts would be much easier, but we have to work within a system in which it will take a long time to bring financial literacy up to a reasonable level. As David says, a lot of the issues we see are indeed the result of not very good financial literacy in the population. That probably goes right back to quite early days. We play quite a small part, in that we produce the material for schools, for teachers, called Skilled to go. That is primarily about general consumer issues, but it does have a small section on financial literacy. We certainly would not hold ourselves up as being a key player in trying to improve financial literacy among the population.

David Fisher: We are a relatively small organisation with a fairly clearly defined remit under the Consumer Credit Act, and frankly we have to focus the resource that we have in delivering that remit as efficiently as effectively as we can. Largely we are doing this on behalf of vulnerable consumers.

Q199 Paul Blomfield: If I could just probe a little bit more into your review of the so-called industry. In the roundtable of debt agencies I mentioned earlier that I had in Sheffield, I was quite shocked by some of the practices. One adviser told me that he had dealt that morning with a case where the high-cost credit company, because they had the debit card details of his client, had taken £800 out of her account without any consent or notice, leaving her unable to pay rent or fuel bills. I was shocked by that, but all the other advisers around the table nodded as if this was common practice, and indeed said it was. I am surprised that sort of area perhaps is not one that is featured in your review.

Vivienne Dews: It is one we are seriously concerned about. I assume that is something like a continuous payment authority. We have a section in our Debt Collection Guidance that makes it clear that essentially is unacceptable practice. That has been challenged by the industry, and as a result of that we are going to launch, probably in a few days’ time, another short consultation on this practice. We will use that in order to draw more attention to the unacceptability of that type of practice. But essentially, if people come across complaints like that, they should tell us, because we do monitor complaints data, so telling us that is happening enables us to take enforcement action.

David Fisher: You were surprised that it did not appear in the Review of high-cost credit. The report that we were doing then was the totality of the market. It was a very macro view of this market and how it works. From that we have developed various initiatives. What did it tell us, and what have we done about it? Obviously it highlighted some issues of concern. Vivienne has referred to the fact that we have issued the Debt Collection Guidance, which draws upon a previous piece of guidance that is crucial to everything that we do in terms of setting standards, which is what we call our Irresponsible Lending guidance, which sets out the minimum standards that we expect of companies operating in the market.

We have a number of very specific concerns, one of which is misusing continuous payment authority. Vivienne is right; that is what you are talking about. Continuous payment authority itself is a perfectly legal thing to do. Like so many perfectly legal things to do, it is how you then use it. We really do have concerns about misuse of continuous payment authority, which effectively comes down to creditors dipping into your bank account, sometimes many times in the day, and taking out sums of money that they may not have agreed with you and at times that you might not have agreed. I am sure the adviser and others would have told you that they can find consumers, quite literally on occasions, left with nothing in their bank account, so how do they go shopping that day and how do they pay their electricity bills? Misuse of continuous payment authority is a concern for us.

Others include, and we have mentioned some of them before, not carrying out appropriate affordability assessments. We regard that as irresponsible-to be lending money without properly checking that somebody is capable of repaying it. We regard things such as continuously rolling over loans as another example of irresponsible lending.

The interesting thing about these things is it is not the practice per se. You can use continuous payment authority in a perfectly legitimate way if you are a responsible business. You can roll over a loan in a way that can be perfectly legitimate and responsible. When you step over a line-when you misuse that authority or you continuously roll over loans in an irresponsible way-that is what we are after, and that is what we look for the evidence of. It is companies that do that we set out to target.

Q200 Paul Blomfield: Perhaps, although it is a perfectly legitimate process, it is not appropriate for this sector. The idea that such vulnerable clients are exposed to these sorts of companies dipping into their bank accounts as and when they need to, taking out unmanageable sums of money, is perhaps an area that goes beyond guidance towards regulation. Would you have a view on that?

Vivienne Dews: No, we would not accept that it is not appropriate for this sector. If somebody takes out a loan, setting up an arrangement to repay that loan is an absolute-

Q201 Paul Blomfield: With a manageable sum over a manageable period.

Vivienne Dews: Indeed.

Q202 Paul Blomfield: As opposed to dipping in unauthorised without notice.

Vivienne Dews: We are absolutely against the unauthorised dipping in, and that is something that we will take action on if companies are doing that. But the principle of an authority so that the money is paid over on the agreed basis is perfectly legitimate.

Q203 Paul Blomfield: That could be provided through a standing order, which does not then provide the company flexibility.

Vivienne Dews: Yes, they can be set up in different ways, but if a continuous payment authority is used correctly simply as a means of making the agreed repayments, we do not have an issue with that. We do have an issue if it is used improperly to take money at times when it has not been agreed and without proper authority. We draw quite a distinction between proper use of it and improper use of it.

David Fisher: We have already taken action against two payday lenders regarding their misuse of continuous payment authority. In both cases we imposed requirements on them, the essence of which was that they could use this authority only as agreed with the person to whom they had made the loan. So you can only recover the amount of money that has been agreed with that individual, and you can only recover the money on the day of the month that has been agreed. If you wish to change that in any way, you have to get the prior agreement of the consumer to do that, so we have imposed requirements on a couple of companies already.

Q204 Paul Blomfield: Thank you. I will move on to a different area, which is debt management companies. Your review of debt management companies was taken out because, even though you had made recommendations, the industry was not responding as you had hoped. Is it now responding to the findings of your review of those companies?

Vivienne Dews: They are continuing to work with us. A very significant number of companies left the market following that review. We are or have visited all the other companies who are working in that area. Some of the trade associations are doing some good work in trying to bring up the standards. I do not think we would say that we are yet completely happy, but yes, we do see significant improvements following the work we did.

David Fisher: We will be updating our guidance on debt management in the new year. I sometimes find that people perhaps think the name "guidance" is a bit of a misnomer. We call it guidance because that is what the Consumer Credit Act calls it. It is more than guidance. It is not soft law, as some people call it. It is not a rule, as the FSA are capable of doing, but it is effectively setting out to businesses the minimum standards that we expect of them, and we illustrate it with examples of business practices that we would regard as irresponsible and that go to the question of whether they are fit to hold a consumer credit licence.

So we make it very clear to industry that we expect them to comply both with the letter and the spirit of the guidance. If they do not, and we have good evidence that they do not, we will take that into consideration when we are considering asking ourselves the question, "Does this company remain fit to hold a consumer credit licence?" be it as a debt management company or any other in the sector.

Q205 Paul Blomfield: In the context of that explanation, it was extraordinary that 129 out of 172 debt management companies were actually breaching your guidance.

David Fisher: Yes.

Q206 Paul Blomfield: Could you perhaps explain to us a little bit more about what you are now doing in terms of remedying that situation and monitoring their performance?

David Fisher: Vivienne has partly touched on that. As you rightly say, we warned 129 firms, which was a very high proportion of companies operating in the market at that time. Frankly we would be the first to say how very, very disappointed we were to discover how little credence seemed to be given to the guidance. But what did we do? We took rigorous enforcement action, and I think you have already quoted the statistic; I think something like 53 companies exited the market immediately following that as a result of the work that we were doing.

Q207 Paul Blomfield: Was that a voluntary exit from the market or was it because you revoked licences?

David Fisher: It is a mix. Quite a surprising number you might think-a large number of them-voluntarily exited before we would take enforcement action against them. Frankly I can only deduce from that that they saw what was coming. Some of them did not volunteer to go gracefully, if I can put it that way, so we took enforcement action against them. That was the 53. Since 2010 a further 17 have exited the market as a result of enforcement action or as a result of us not letting them into the market in the first place.

The next step is the revised version of the Debt Management Guidance, which will come out in the new year, which will very explicitly pick up on some of the concerns that we identified with the review. That will set a new and even higher standard that we will expect people to comply with. If we find evidence that businesses do not comply in any significant way with that guidance, we will take enforcement action against them.

Q208 Paul Blomfield: I do not have the sum in my head, but there are clearly a number of companies that previously breached your guidance that are still in the market. Are you worried about their performance now? What are you doing to monitor their operation?

David Fisher: We imposed requirements and conditions on a number of companies, and part of our remit is to monitor their compliance with those requirements. If they comply, as some of them will for sure, then brilliant. But if we find evidence that they are not complying with those requirements, we will take appropriate enforcement action.

It is perhaps worth making the point that we have to try to tailor our actions to the seriousness of the concern that we have. We also are very much driven by how a company chooses to respond or not to respond to what we do, and we have various ways that we can deal with companies. We can sit down informally and talk with them about our concerns to see whether they will agree to change their business practices. We can escalate it and we can impose requirements upon them.

We would be particularly concerned if a business subsequently disregarded an undertaking to behave differently they had given us or we had imposed on them. That would go straight to the heart of the crucial question for us: "Are you fit still to hold a consumer credit licence?" The next escalation, frankly, is a choice: we can impose a financial penalty if they disregard a requirement, or we might just choose to go straight to action to revoke a consumer credit licence.

Chair: Could I ask you to try and keep your answers as concise as possible. We are running out of time and we have some more questions.

Q209 Paul Blomfield: This is my final question. On that point that you were making, you have been criticised because of the time that it takes to revoke a licence. One of my colleagues made the point in the very fine partisan debate we had in the Chamber a couple of weeks ago that it can take up to two years. Would you like to have more powers to be able to suspend licences more quickly?

Vivienne Dews: Yes, is the short answer.

Q210 Ann McKechin: As you will be aware, the Government has put a high priority on selfregulation rather than introducing further legislation. Given that self-regulation would often mean a reduction in profits for debt management companies, what do you think the incentive is for greater self-regulation as opposed to statutory controls in terms of this sector of the industry?

Vivienne Dews: The debt management companies are subject to the statutory controls in the form of the Consumer Credit Act and the regime we run. I do think that the selfregulation and the trade association regulation is very helpful in terms of improving the standards in the industry. We work with the trade associations as well as the individual companies to bring the regulatory standards up. Our concern is about getting standards to the right level, using all the levers that are available to us.

Q211 Ann McKechin: There has been some criticism about the lack of competition, because consumers do not compare one type of debt management company with the others, and the charges can be very opaque. Do you think that debt management companies should be forced to produce figures, for example the number on debt management plans, the average payments, so that people can ultimately get some feel for the level of services available to them?

Vivienne Dews: I think the key thing is that the individual consumer should be able to see what they are paying and what they are getting for it, and should be able to compare what they are getting from one company to another. You are absolutely right that this is not a market in which you can shop around; it is possibly even worse than high-cost credit in that people do not shop around in this market. They may feel uncomfortable with the stigma associated with it, so our concern is absolutely about transparency of what they are paying and what they are getting from the company.

David Fisher: It is a classic distress purchase in debt management.

Q212 Ann McKechin: Can I just ask another very quick question? It was raised in some of the evidence we have heard about the differences that are applicable in Scottish law in terms of voluntary settlements with creditors, and people thought that the solution in Scotland that was used for debt management plans was preferable to that which applies south of the border. Do you have any reflections on that?

David Fisher: I am afraid not. It is different.

Vivienne Dews: It is not something that is known to us.

Q213 Chair: Just going back to the issue you raised about the cost of a licence and the number of licensees that you have to monitor, do you not think there is a case for raising the cost of a licence? Because you do say, in effect, if you had more resources you could do more to monitor. Therefore, given the huge number of companies that you have to monitor, and inevitably you cannot be as intrusive as maybe you should be on them, and the low levels of entry, is there not a case for raising the cost of entry to give you more resources to monitor more effectively those that are still left in the market?

Vivienne Dews: There is certainly a case, and we are already starting to discuss with Government where they want to set that level. At the moment the regime is run very much on a "keep the costs low" basis. That may no longer be the right way to run it. There have been changes in the market over recent years, and it may be that more resources so that we can do more enforcement work would be the way to go. But that is certainly not something for OFT on its own; it is something that we would like to talk to Government about, and the decision ultimately will be taken by Ministers about how they want to see that balance between keeping the cost down and maximising what we can put into enforcement.

Q214 Chair: If you could take a piece of regulation off the shelf to help you do your business, what would be your priority?

Vivienne Dews: The thing we would most like would be the power to suspend a licence. I am not sure that is quite what you meant, but if we were looking at how we could increase our powers, that would be top of our list. It has been discussed with Governments in the past. I do not think there is any debate about whether it would be a useful thing to do; there has not been an opportunity to give us that power, but there is no real debate about it.

There are some other less clear things we would be interested in. For example, the power to ban a particularly harmful product would be one of those. Those and the point about resourcing would be the key points we would make.

David Fisher: Possibly a regulatory redress scheme of some sort. For example, the FSA have that within their remit, and we do not. That might be another example.

Chair: Interesting. Thank you very much. That was very helpful, and we will incorporate your information and preferences into our report and maybe our recommendations as well. Thank you very much.

Examination of Witnesses

Witnesses: Edward Davey MP, Minister for Employment Relations, Consumer and Postal Affairs, Nick Howard, Deputy Director of Policy, Insolvency Service, and Kirstin Green, Deputy Director for Consumer Credit and Empowerment, Department for Business, Innovation and Skills, gave evidence.

Q215 Chair: Good morning, Minister, and welcome back.

Mr Davey: Yes, it is great to be back again, thank you.

Q216 Chair: Could you introduce yourselves for voice transcription purposes?

Nick Howard: My name is Nick Howard, and I am Deputy Director of Policy at the Insolvency Service.

Mr Davey: Edward Davey, and for this session I am the Consumer Affairs Minister.

Kirstin Green: I am Kirstin Green. I am Deputy Director for Consumer Credit and Empowerment at BIS.

Q217 Chair: Thank you very much. First of all, the new Financial Conduct Authority. Where is it going?

Mr Davey: We are still analysing all the responses to the consultation and working closely with the Treasury, and we will be announcing our response early in the new year. I am afraid I cannot pre-empt that here today, Chair.

Q218 Chair: Okay, how early is early?

Mr Davey: It has not been decided, but I expect it will be January or February. But it is a very important part of the jigsaw, so I understand why you would want to raise it.

Q219 Chair: Yes. Just on another issue, you may or may not be aware of this, but the salary of the MAS Chief Executive was quoted earlier on at £250,000 plus benefits. In comparison with the Prime Minister’s salary, does that not seem somewhat excessive? How did you arrive at that figure?

Mr Davey: It has not been a decision from BIS. As you will know, the budgets for MAS are set by the FSA and they are responsible to the Treasury via the FSA. We are just consulted on their budgets. But you will know, from evidence the Secretary of State has given to this Committee, that in BIS we are concerned about high salary levels, both in the public and private sector, and we would urge restraint at that sort of level, for sure.

Q220 Chair: Did you urge restraint?

Mr Davey: Well you started off your question asking whether I knew about it. I was not involved in the setting of it. All I will say is that it is quite a high amount, and I am sure the Financial Services Authority and the financial services industry will be wanting to look at it.

Q221 Chair: Thank you. Can I just go on? Debt. There are increasing numbers of people in unmanageable debt. What do you think are the main reasons for it?

Mr Davey: We have seen over a period of time a huge growth in consumer debt. It is now I think about £1.4 trillion. While most of that is secured, we still have a lot of unsecured debt as well. I think that is partly because there has been the ability for people to lend in our liberalised credit markets.

The reasons, I would guess, are beginning to change. There may be some people now who are borrowing because they are under financial pressure. There will be a myriad of reasons, but we have seen a big trend of increase, although I think the rate of increase and the composition will no doubt change again. We need to be worried that there could be particularly vulnerable consumers who are exceedingly financially constrained and are having to rely on credit.

Q222 Chair: Yes, absolutely correct. Of course we are coming up to Christmas, when vulnerable consumers are under most pressure. Is the Government planning to act to discourage people from taking on unmanageable debt at such a time?

Mr Davey: We do have a view that people need to decide what they are going to borrow themselves, and it is not the Government’s job to go in there and tell people, "You should borrow this, and you should use this product or that product." I think in a free society it is important that people have freedom and choice. Of course, through a lot of our work and the work with many other people, we wish to try to improve information and improve the overall financial literacy of the nation.

That is why with the last Government, the crossparty agreement got into law what was then called the Consumer Finance Education Body and now the Money Advice Service, who I know you have spoken to to develop that side of the equation, but it also very important that organisations on the frontline, whether it is Citizens Advice or others, are also able to provide advice and information.

Q223 Chair: I accept that it is a dividing line between, if you like, the "nanny state" and so on, but the Government does introduce a whole range of public information or public warnings over a whole range of issues. In view of the significance of Christmas, the pressure it brings on people and the consequences of not handling it correctly, is there not an argument for some sort of public information campaign that would at least, shall we say, inform and advise people?

Mr Davey: There will be a number of campaigns over this period. There is one that will be launched targeting young people to make sure that they understand the issues of managing their debt, because there has been a rise in the number of young people getting debt relief orders, so we have taken that part from statistics, and working with a number of organisations, including Citizens Advice, that campaign will be going. There is also an Illegal Money Lending project Christmas borrowing campaign, to make sure that people are aware that they should not go to illegal money lenders-people who are not licensed, the loan sharks.

Q224 Chair: Do you know when these are rolling?

Mr Davey: I think they are rolling very soon.

Q225 Chair: Given the proximity to Christmas, they need to be.

Mr Davey: They are Christmasrelated campaigns.

Q226 Paul Blomfield: When we met Martin Lewis he talked about the UK market in this sector as being "a crock of gold at the end of the rainbow for payday lenders who have been shut down all over the world", and he talked about us as the unregulated Wild West. Are you concerned about the proliferation of payday loan companies? I am guessing that you probably are, and I should not prejudge your answer, but what are you going to do about it?

Mr Davey: I have a huge respect for Martin Lewis. The work that he does is highly regarded not just by Government but many people out there. I think to say that the sector is unregulated is not quite true, because we have the Office of Fair Trading, who have taken action against payday lenders.

But you asked whether I think this is an area that we should be worried about, and the answer is yes; we should be worried about all aspects of high-cost credit, not least because they tend to be used by more vulnerable consumers. Our approaches, whether it is looking at regulations, codes of practice or other ways of getting competition into the market and so on, are all designed to try to make sure that we improve the overall options and experience for the consumer.

Q227 Paul Blomfield: When we met with one of the representatives of the industry-I cannot recall who-they described the UK market as still relatively immature. The more mature market in the US has decided that regulation is the way forward, so why are you not inclined in that direction at the moment?

Mr Davey: First of all I would say that there are regulations.

Q228 Paul Blomfield: For example, regulation to cap total levels.

Mr Davey: You will be aware, following our review and call for evidence, there were an awful lot of people suggesting that we looked at a cap on the total cost of credit. The previous Government had looked at caps on interest rates three times, with the OFT research, the Competition Commission research and a review done by Policis, and they came to the conclusion that putting a cap on interest rates had a real danger because it might push consumers into the hands of the loan sharks, the illegal money lenders. So the previous Government did not pursue that.

But this idea that came up and was pushed both in Parliament and outside Parliament of a cap on the total cost of credit had not been researched before, so we decided to commission some research on that, and we announced recently that Bristol University’s Personal Finance Research Centre will be looking into that and reporting next summer.

Q229 Paul Blomfield: Next summer? Could you give us a more precise indication?

Mr Davey: I think it is down for July. I have asked them to give us an interim report halfway, because I know there is a lot of interest in this.

Q230 Paul Blomfield: That is helpful. Will you be able to share the interim report with us as a Committee?

Mr Davey: Whatever we get from their interim findings, I am very happy to share, but obviously it will be the major report when it is published that I am sure you will want to look at.

Q231 Paul Blomfield: Can I just ask about a further aspect of potential regulation, and that is the concern that there is about the way that loans are rolled over? Again, in the States one of the legislative interventions has been to prevent rollover of loans, which gets people into this spiral of credit and zombie loans. What is your view on that sort of area of Government intervention?

Mr Davey: We have concerns. Again, I should go back to OFT, because it does operate in this market. As I am sure they will have told you, they have Irresponsible Lending guidance, and they are going to do a compliance review next year and I think they will be targeting the payday lender market. I think they have made it clear that, if they find noncompliance with their Irresponsible Lending guidance, they will be enforcing, as they have done in the past.

In addition to that, we are now engaged in intensive discussions with the four associations who represent over 90% of the payday lending market to see whether or not through codes of practice we can have significantly enhanced consumer protection. I have written to the associations and I intend to meet them. I am making a very clear signal to them that some of the practices that I think you are referring to, whether it is the rollover, the continuous authority, irresponsible advertising or a need for greater transparency, all need to be addressed in codes of practice.

Q232 Paul Blomfield: If they were not addressed to your satisfaction, would you be prepared to regulate and legislate?

Mr Davey: I always believe that you should try the nonregulatory route first, and I believe codes of practice can work. But I do remind you that there is regulation in this sector, and obviously, as we look at the consumer credit regulation regimes as a whole, as the Chairman reminded the Committee we are doing at the moment, one of the issues we will be looking at is the power and resources for the consumer credit regulator.

Q233 Nadhim Zahawi: Will you be introducing a new measure, Minister, other than the APR, to help people to understand and compare payday and high-cost credit deals?

Mr Davey: We have no direct plans to regulate to force payday lenders or indeed any other lenders to have new measures, but I think there is a very good and healthy debate about APRs because they can often not be the most informative measure of the cost of credit. Indeed, some lenders talk about the total cost of credit to make sure that people understand that if, for example, they borrow £100 from a payday lender, in five days’ time they will pay back £110. I am afraid I cannot remember what the APR would be on that, but it is thousands of per cent.

Q234 Nadhim Zahawi: Pretty big.

Mr Davey: Pretty big. But they probably would not generate much business if they said, "There is a 3,000% APR on this."

Q235 Nadhim Zahawi: He put it in terms of pints of beer that you would buy a friend to thank him with.

Mr Davey: Yes, Martin Lewis is very keen on that anecdote, but given that we discussed pubs last week, I would not want to go back.

Q236 Nadhim Zahawi: Very well. Your suggestion for the payday loans market is selfregulation. We have heard from Consumer Focus that previous attempts at this have been unsatisfactory. What is new in the Government’s proposal?

Mr Davey: I am going to be like a stuck record, I am afraid. There is regulation in this sector. It is conducted by the OFT. I know others would like to see the OFT have more powers, and one of the themes that has come out in our consultation on the Consumer Credit Regime is that some people wish the consumer credit regulator to have more resources too. So I am pushing back, I am afraid. There is regulation in this sector, but the question is whether we need to give the consumer credit regulator more powers than it has at the moment.

Q237 Paul Blomfield: You are talking, Minister, about the role of the OFT, a point you have made with some regularity. The OFT carried out a review of the sector and made two recommendations, which, from my experience of talking to debt advisers, would have been extremely helpful because of the problems of comparing various products in the market. They called on the Government to look at introducing legislation to create a single website to allow consumers to compare home credit, payday and pawn broking loans, and also to look at highcost credit wealth warnings. I understand those are two recommendations you rejected. Why?

Mr Davey: I think the proposal on the website came from the Competition Commission’s inquiry into credit.

Q238 Paul Blomfield: No, it was from the OFT.

Mr Davey: I just want to make sure that I am answering in the right sphere here, but I am advised that the Competition Commission’s remedy for the problems it saw in the home collected credit market was that a website be set up, and I believe that is actually active and working, but maybe we are talking at cross-purposes.

Q239 Paul Blomfield: I think there is a difference between the website you are referring to and the OFT recommendation, which was for a website with comparative loans across the whole sector, not just home loans, including the high-cost credit sector. And you rejected that recommendation.

Mr Davey: I think one of the issues here, and it also goes into the wealth warnings, is first of all there is quite a lot of information out there now that is very easily accessible about the different costs and comparisons. I am sure Martin Lewis would have referred you not only to his own website but to others that do give price comparisons.

I hear the point on the wealth warning, but let us remember that it was only in February this year that the Consumer Credit Directive came into force, and that had a number of measures in it, putting new requirements onto lenders, giving consumers new rights in these markets. They included: "Lenders will have to make a reasonable assessment of whether a borrower can afford to meet repayments in a sustainable manner"; "Lenders will have to explain the key features of the credit agreement to enable the borrower to make an informed choice"; and "Prospective borrowers will be given an information sheet setting out all the relevant information…in a standard format for all lenders, so borrowers can easily compare the costs of different loans." That is an actual regulation in this area that is already there. Of course, one can always introduce new regulations, but this is a pretty recent regulation, only coming into force in February this year.

Q240 Rebecca Harris: The Government places quite a lot of emphasis on credit unions. I just wanted to know what you are specifically able to do to create an environment in which they will flourish, and what your vision is for credit unions?

Mr Davey: I must be slightly careful, because I do not have ministerial responsibility for credit unions, but I will try to answer the question. You will know that the Department for Work and Pensions is undertaking a study on credit unions. It has set aside £73 million to invest in the credit union sector over the spending review. Before it decides how it wants to spend that money, it wanted to do a feasibility study to work out the best way of trying to enhance and develop the credit union sector. I think that is the right thing. I have not seen that report, it is not yet published, but I am very much looking forward to it.

I certainly engaged with Lord Freud, who is the Minister responsible at DWP, wearing two hats actually; the first was the consumer credit hat, because I think the role of credit unions is very, very important in this space. I think it could have a very significant impact if we can enhance, develop, widen and grow the credit union sector, because I think as a not-for-profit competitor in the highcost credit market, it could give some of the other high-cost for-profit lenders a real run for their money. I would really welcome that, and it would be a competition response to the problem, so I am looking forward to their report in that regard.

Wearing another hat, which is the Postal Affairs Minister’s hat-I would love to come to talk to you about the Post Office some time, Chairman.

Q241 Chair: You may well have an opportunity very shortly.

Mr Davey: I am looking forward to that. But I personally see a role for the Post Office network to help credit union expansion. I cannot say that is what the report will recommend, but it is no secret, and I have said it in the House, that I see a potential role for the Post Office network.

One of the issues about credit unions is that people are not aware of them as an option. They also have real problems transacting and being out there for people to access. If you could access credit union payments over the Post Office network, and they were there and able to advertise credit union products, I think it would be the biggest shot in the arm imaginable for the credit union sector. When you look at other countries, credit unions play a bigger role there. I am sorry this is a bit of a long answer, but I do feel passionately about this. I am not sure if I am giving the vision you wanted, but I do believe this is an area into which we should go.

What really struck me was when I was talking to one of the Illegal Money Lending teams who are cracking down on the loan sharks, the real criminals that cause so much misery to people, was that they gave me an example of how-

Q242 Chair: Could I just say we are coming on to illegal loans.

Mr Davey: Okay, I will just summate then, and I will give you the full monty when you come back to it. The people who they helped had been harassed for 10 years by the loan sharks, had gone through misery, and they were not aware of the credit union option. Now that they have got themselves on the straight and narrow again, having been helped by the Illegal Money Lending team, they are accessing credit via a credit union, and their lives have been improved immeasurably. So I think the role of credit unions should not be underestimated.

Q243 Rebecca Harris: One of the specific suggestions made to us by the credit unions is that the other credit providers should have to highlight their availability in their advertising. Obviously to enforce this would require legislation, but are you in favour of that as an idea, and how could you promote it if you were?

Mr Davey: I have not heard that before. I have met ABCUL on at least one if not two occasions to talk about this Post Office scheme, and I would like to see what the DWP report says. I think what I want most of all, the more you look at the different problems in the different markets-I think this is really important-is for people to be made more aware of the notforprofit competitors or the free debt advice competitors, and they need to be more accessible. I think pursuing those sorts of policies is really important to dealing with consumer detriment in this area.

Q244 Ann McKechin: In terms of alternative forms of finance other than payday loans, we have obviously talked about credit unions, but I think there is some acceptance that credit unions are still a very small percentage of the entire market. You mentioned about issues around Post Offices. I just wondered if I could tease out whether you think Post Offices and Post Banks should be offering these types of services to consumers at a more affordable rate. If they cannot get access from their banks to that type of lending, do you think that would be an alternative? I do not think anyone can be comfortable about payday loan shops scattered like a bad rash round many of our communities.

Mr Davey: We looked at the issue of a Post Bank soon after coming into Government, and we looked at whether we could find money in the spending review to get a Post Bank up and running. But the amount of money to capitalise it was pretty significant, and we had already managed to get £1.34 billion for the spending review to keep the Post Office network running, so that it did not have to have any further closure programme, and to modernise the Post Office network. I think it is fair to say that, given this was a pretty tough spending review to say the least, there was not sufficient money to capitalise a Post Bank.

However, because the concept behind the Post Bank is really very important, I have spoken to Post Office Ltd on a number of occasions, and in our Post Office policy document, which we published in November last year, we talked about trying to get all the high street banks to make their current accounts accessible via the Post Office network. We have got RBS now signed up, so now 80% of current accounts can be accessed over the Post Office network; it is just HSBC and Santander who have yet to join in.

Directly to your point, to repeat the remark I made to Rebecca Harris, I am very keen that credit unions can be accessed over the Post Office network, but that is different from a Post Bank offering those products.

Ann McKechin: Yes, yes,

Mr Davey: It would be the credit unions offering the products via the network. That is the goal, and it sort of mirrors what I was talking about with high street banks. That is the way I think we can ensure these products are more available in an affordable way. But I regret I cannot give the Committee a guarantee we will be able to do that. We are waiting for the DWP report, but certainly in my discussions with ABCUL and POL and DWP, this is a policy area that I have been pushing.

Q245 Chair: Can I just say, we are looking at inviting you back on this issue in the new year?

Mr Davey: I look forward to it.

Chair: It also brings me on to Katy Clark’s question.

Q246 Katy Clark: Yes, it is really following on from that. What are you doing to encourage the banks themselves to provide short-term loans but also credit to the socially and financially disadvantaged?

Mr Davey: Our focus with the banks has been on trying to see if we can help people avoid some of the charges they levy, particularly on unauthorised overdrafts, but also to try to improve the information they provide and the transparency they provide to customers with things like the Annual Statement, which will be rolled out for all the main banks by the end of this year. That is not necessarily providing specific financial products, but it is I hope providing reassurance that they can control their bank accounts more and have better information.

Q247 Katy Clark: Obviously some of that may be, fair play, worthwhile, but in terms of the financially excluded in particular, is that something that you are looking at?

Mr Davey: The past Government did quite a lot on basic bank accounts. There has been some work done by the Treasury. We have had some involvement in it in looking at another type of account that could be used. I am not quite sure where the research is on that, I am sorry. I am sure we could write to the Committee; we do not have a Treasury lead on it, but we could look at that.

We are consulting on improving access to basic bank accounts for undischarged bankrupts. This was something that Citizens Advice raised with me very early on. In many ways undischarged bankrupts were having the worst deal of all, because they could not open any bank account. There were one or two providers, the Co-op Bank, I think, and there was another one, who did allow bankrupts to use bank accounts, but all the other banks said that they would not do it. So our consultation, which is out now, is trying to look to see if you can have remedies, if necessary legislation, to enable undischarged bankrupts to access basic bank accounts.

Q248 Katy Clark: If you are able to write with further information, that would be very useful.

Mr Davey: I am not on the particular Cabinet Committee, the Social Justice Cabinet Committee, that I know is looking at issues in this area, including accessible credit for the disadvantaged. So I will get a report on that, if it is in the public domain, and ensure you have that as well.

Q249 Julie Elliott: We are now moving on to loan sharks. Can you reassure the Committee that the work to prevent illegal loan sharking is continuing in this time of quite severe cuts? How do you ensure that local trading standards do not ignore this work and concentrate on other priorities?

Mr Davey: I would like to start by paying credit to the previous Government. When they set up the pilot of the Illegal Money Lending project in 2004 with a team in Scotland and a team in Birmingham, I think it proved incredibly successful, because in the past Trading Standards, the police and others have not really focused on these loan sharks who were terrorising people in the estates and communities around our country.

The previous Government, in my view, was quite right to expand that project and put more money in it. One thing that I am proud of and pleased that we were able to do in the spending review was maintain funding for the Illegal Money Lending teams. This funding for the project was £5.2 million in 2010-11 and £5.2 million in 2011-12. I see it as a funding priority, because these Illegal Money Lending teams have been so effective. I could give you all the details about how they have been effective, but I do not want to get in the way of your asking questions. But I think they have proved their worth time and time again.

Q250 Julie Elliott: Can you tell us what projects you currently have in operation on illegal loan sharking, and how will you target the illegal loan providers?

Mr Davey: Our main project is through the Illegal Money Lending teams, and our funding through them. They will be doing a whole range of different activities in different communities. In order to try to make sure the money was more effective, we have brought some of the teams together and created three teams: a team each for England, Scotland and Wales, and learnt the best practice. So there are national teams, and then they have community people on the ground, providing advice and support for victims. We have reformed the way Illegal Money Lending teams are operating, but that was on the basis of an independent report, and it was not directed at savings; it was directed at making sure the enforcement was more effective.

Q251 Julie Elliott: How will it be targeting the providers? Giving support to the victims is good and should be happening, but how are you targeting the providers and catching them at what they do?

Mr Davey: I could not give you all the different techniques that the Illegal Money Lending teams operate, but they are arresting and prosecuting people. I can give you some of the outcomes of the project, which go to the end of June this year. The project has identified over 1,700 illegal lenders. It has arrested over 500 illegal money lenders, the loan sharks. It has written off over £37,000,000 of illegal debts; it has secured over 182 prosecutions, resulting in prison sentences totalling over 107 years and one indefinite prison sentence, and it has helped over 16,000 victims of loan sharks, so that will give you an indication that this is a very active programme, and I believe we must continue this work. I think it is incredibly important.

Q252 Ann McKechin: If we could turn to debt management companies, Minister, again this is something that has increased in its level of activity in recent years. Are you concerned about that growth and what impact it has for vulnerable groups?

Mr Davey: I think there is some practice that you hear about that is worrying in the paidfor debt advice sector. There is some evidence that there is some abuse of upfront fees. However, we should not totally dismiss the paidfor sector. They have a role to play. My focus though is on expanding and supporting the free-for-debtor advice services, whether that is Citizens Advice or the Fair Share plans such as Payplan and the Consumer Credit Counselling Service.

That is why we asked the Money Advice Service in July to take responsibility for co-ordinating debt advice across the country. We commissioned them to undertake some research to look at the debt advice landscape, to review it and to work out what our priorities should be. I gave them a bit of steer. I have mentioned this on the floor of the House. I am extremely keen that the free debt advice sector is of the highest quality, is available quickly for people when they come out from under the duvet, if you like, and are prepared to accept advice, and that it is comprehensive across the country.

Q253 Ann McKechin: Can I just clarify one point? Some commercial debt management companies appear to be lobbying hard to get access to Fair Share funding. Perhaps they worry that upfront fees may be prohibited or restricted in some way in the future. Could you just clarify that, from the Government’s point of view, you think that this funding should only be for the charitable or not-for-profit sector?

Mr Davey: I have not been lobbied, but we will look at these issues in the round. I think the priorities I have set out are the ones I am focusing on at the moment. The research that we are hoping to get, probably in the new year, from Money Advice Service will focus on how we use public money as effectively as possible. That might involve channel shifting, it might involve new outreach services, but one of the things I am particularly keen that it does is make sure that the branding of free publicly funded and supported debt advice is strong and well known. As I said in the House last Thursday, the Citizens Advice brand is very strong, very trusted and is something we should build on.

Q254 Ann McKechin: Would you agree that these types of debt advice services that you are talking about should cover everyone? They should not be cherry-picking people just on the basis of their income or their assets in terms of whom they provide advice to, but they should provide advice to everyone.

Mr Davey: Yes. Are you talking about the Citizens Advice type service?

Q255 Ann McKechin: Yes, that type of service.

Mr Davey: Yes, I think the real policy issue is how that advice is delivered, because you have three options fundamentally. You have online, telephone and faceto-face. There is some evidence that some people who may be able to manage their affairs relatively well but have come on hard time-they have lost their job or whatever-actually prefer online or telephone services. If we can encourage a shift to those for those people for whom they are the most appropriate and actually the most preferred services, we can then free up some resources for face to face.

I am sure in your constituency advice surgeries the situation where someone comes to you for advice. They have a plastic bag, they tip it up and it is all the unopened envelopes, and they say, "How can you help me?" The lesson I draw from that is there are an awful lot of people out there really suffering, often depressed or with other mental health problems, and I am not yet convinced that the current debt advice landscape is reaching out sufficiently to those sorts of people. We need to ensure we can free up some money so we can have better outreach services.

Q256 Ann McKechin: I am sure that is something the Committee would support. I have just one final question about the issue of debt management companies and upfront fees. As part of your current review, are you considering the issue about whether upfront fees should be restricted in any way? There is concern about the way in which this operates.

Mr Davey: No, I have seen that. Let us be clear, this is not an unregulated sector. The OFT are the regulators. They did a Debt management guidance compliance review in 2009-10. They warned 129 businesses; 53 exited and no longer have licences. Indeed 70 noncompliant debt management services have left the market since September 2010, and they are providing revised OFT guidance on debt management in the new year. I think it is that approach that we need to adopt rather than new regulations. OFT’s approach is the best way to drive out the people who are abusing upfront fees.

Q257 Chair: A recent survey-I think it was by A4e-has shown that something like over 60% of people who used with-profit debt management companies ended up feeling that their financial situation had got worse. Do you not think that is a prima facie case for being a lot tougher on them?

Mr Davey: I would say we have a panoply of tools that we are applying here. I have mentioned just now the role of the OFT and their revised, strengthened guidance coming out in the new year. I have mentioned the debt advice landscape review, which I believe needs to develop a system where the free advice sector is stronger and is even better known. We are doing other things in addition. We are in discussion with the industry, with the feecharging, with the free-to-debtor, with the creditors and with the debt advisers, on new debt management protocols.

The idea is that they will augment the OFT guidance to drive best practice. I believe you can get improvements through the tools I talked about, and by simply going after the upfront fees you may be missing the quickest and best way to improve this sector. Let us remember that the OFT reviewed this sector and did not recommend that upfront fees should go.

Q258 Chair: You mentioned developing the free advice sector. Do you not feel that a measure of the success of MAS and the free advice sector will be a significant diminution of the role of private providers?

Mr Davey: I think that is one potential measure, yes.

Q259 Chair: Would you be looking at assessing in effect the current policy in the light of those measures?

Mr Davey: I think one has to look at what is in the interest of all consumers. What I want to make sure of is that, for those consumers who cannot afford to pay, there is quality free-to-debtor advice available in different forms, and that people know that is available. You have to put yourself, I always think, in the shoes of the debtor. As I said before, often people in debt can be suffering illness, often mental health problems. That is quite typical. Therefore, to assist people who are really very vulnerable, we need to make sure that they know where to go.

I keep talking about the brand awareness of free debt advice services, particularly Citizens Advice. I think that is absolutely critical, and if we can build on the very strong brand that Citizens Advice has to create a free debt advice sector that is high quality and available across the country-where people do not have to wait very long to be able to access it and that links into the telephone and online services operated by the Fair Share organisations like CCCS and Payplan-I think we can get to a place where I, as Consumer Affairs Minister, can at least feel sure that those people who cannot afford to pay for debt advice know where to get quality free debt advice.

Q260 Chair: Finally, almost by definition, those who need debt advice cannot afford it. Whilst I welcome the approach I think you are talking about in developing the free advice service, if it is fully developed, I would have thought at least in theory nobody would need to go to the withprofit advice service. No logical person voluntarily should pay for something that is adequately provided free, so we come back to the point that, if the service is to be effective, we would really expect a diminution of the role of the withprofit sector.

Mr Davey: I think I have already replied in the affirmative on that. What I am trying to say is, if we can have effective competition from the free-for-debtor advice sector, then the paidfor sector is going to struggle. But let us remember that there are those who are in difficulty who sometimes are still on an income and may prefer to pay for debt advice, because they may think it is going to provide them with a better service in whatever way they decide. So I am not looking to regulate the sector out of existence. I do strongly believe in the OFT, with the powers it has, regulating the sector using its revised guidance. My real aim is to improve the free-for-debtor advice services.

Q261 Paul Blomfield: Just a brief supplementary, Chair. I have to say, Minister, you seem a little bit relaxed about the for-profit debt management sector, when the OFT inquiry actually exposed deep concerns about this sector; 129 out of 172 companies in breach of their guidance.

Mr Davey: Can I say I am not relaxed, if that helps you?

Q262 Paul Blomfield: Well it helps to some degree, because you were creating that impression. But very specifically, you have talked about the OFT’s role and its powers. You will recall that in the debate in the House the other week one of the concerns that was raised, I think on both sides of the House, was the long time it takes to revoke licences. Would it not be an appropriate response to give the OFT stronger powers to revoke licences more quickly?

Mr Davey: As I said to, I think, two questions today, when we respond to the consultation on the consumer credit regulatory regime, we will not only be saying who will be carrying out the consumer credit regulatory function but also talking about powers and resources. I do not want to prejudge the response of that consultation. We have not finally agreed it with the Treasury. We have got a bit more to do. But I do want to signal to you that that is the place where I think we will be able to give more of a response to that question.

Q263 Chair: Just moving on, one of the complaints that we receive is the advertising techniques used by these companies, including cold calling and text messaging. Do you think they should be banned?

Mr Davey: I am sorry I keep coming back to the OFT, but that is the regulator. They have issued stronger guidance in that area, not just on cold calling but on warm calling as well. The fact that stronger guidance has been welcomed by a lot of people I hope means that, when they review the market and find people are not complying with that stronger guidance, they will see action taken against them.

Q264 Chair: Sorry, are you saying that, if the OFT find that the current guidance is not adequate to deal with this problem, stronger measures will be taken?

Mr Davey: No, no, sorry. They have strengthened their guidance in this area.

Q265 Chair: Yes, and if it does not work?

Mr Davey: What I was saying was, when they are enforcing and carrying out their regulatory role, they obviously will be looking for businesses to comply with their stronger guidance covering these issues of cold calling and so on. If they find breaches of the guidance, I am sure that they will take enforcement action.

Chair: We will follow this very carefully.

Q266 Paul Blomfield: In helping to develop my understanding for this inquiry, I convened a meeting of debt advisers in my constituency, which was very well attended and a very useful session. Although they recognised the point that you were making about an overdependence on face-to-face advice-and indeed locally their services are looking at ways in which they can reconfigure their offer so that the primary contact is website or telephone advice-they were also at the same time worried that there was a perception in Government and with the Money Advice Service that web and telephone advice could deal with a much wider section of demand than was in fact the case, and that there remains strong demand, or strong need, particularly amongst the most vulnerable, for face-to-face advice. How do you see the future of face-to-face advice when funding ceases at the end of this year?

Mr Davey: Let us be clear. I put a huge value on face-to-face advice. I do not believe there should be any diminution of face-to-face advice. It may well be that those monies are looking at a different group-some people who are missing out on that. You will know, I assume the Money Advice Service told you, that they have secured from the FSA the monies from the levy on the financial services industry for face-to-face debt advice for the next financial year, which is very, very good news. I am glad we have got that for the debt advice community in good time this year.

Ultimately what I am waiting for, which is why I cannot give you a more precise and detailed answer, is some research we commissioned from Money Advice Service in this very space. What we are expecting from that research, amongst other things, is that it will give us an indication of the potential for online and telephone services. I believe there is greater potential than there is now, and it is not just me. I have spoken to people like, for example, the Consumer Credit Counselling Service, and they believe there is great potential too. They believe that a lot of the people who use their telephone and online services are actually more comfortable with those services, so if there can be some shift and we can free up resources what I want to see is better face-to-face advice, not a diminution but ensuring the quality and accessibility of it. As I said earlier, there will be ideally some outreach services as well, because we know that some of the most vulnerable who are in debt may not actually turn up to debt advice.

We need to reach out, and I can give an example from my constituency of a gentleman who had some mental health problems. Despite a huge amount of work by my office, he was not responding, and he was not responding because the people who were knocking on his door to help him with his debt advice were from the council, because his debt problem was to do with overpayment of housing benefit and they were trying to get some of that overpayment back. But of course, if someone knocks on the door of someone who is quite vulnerable and says, "We are from the council," they do not necessarily always open the door. I give you that anecdote from my own constituency because it shows how we need to devise and design outreach services. It needs to be very sensitive to the needs of the people who fall into this category.

I am not saying it is a large category, but is one of the neediest categories, and I have just been slightly worried in my own experience, and I do not know whether you have experienced this in your own constituency, that this category of people are not getting the services they need.

Q267 Paul Blomfield: Thank you. Just a brief supplementary. When we are looking at the balance of results of all the different priorities, why are you funding the Money Advice Service to provide a webbased advice facility when those sorts of services already exist?

Mr Davey: Let us see what happens when they give us their research and report about how we take on the debt advice landscape going forward. I agree that we do not want a proliferation of websites and telephone lines and so on to the extent that branding is lost. But equally there may well be a lot of learning that different websites have and different approaches different websites have. I do not want to sit here today and say there should be only one website and one telephone number.

Certainly my experience of a whole range of these different websites is they often have different facilities and different strengths and weaknesses, and may be appropriate for different types of consumers. So I really want to wait and study the research before making any conclusion. I should say just for the record, as it has just come into my mind, we are not funding MAS website-based provision.

Q268 Paul Blomfield: Thank you. One final question from me. It is unrelated, but at this roundtable that I organised with these advisers, they highlighted to me that the biggest reason in their experience for the clients they were dealing with turning to payday lenders was the inability of the benefits system to deliver crisis loans with the speed that was needed. What discussions have you had with colleagues at the DWP on that issue?

Mr Davey: If I am honest with you, Mr Blomfield, it has not been brought to my attention, but I will talk to DWP colleagues as a result of that. I wonder whether it is the only issue though.

Q269 Paul Blomfield: It is not the only issue, but for them it was a significant factor.

Mr Davey: I sometimes hear stories that it can be sometimes difficult to get an immediate appointment for debt advice. One thing that may well come out from the research is the need for a very quick response when someone is-I always say coming out from under the duvet-facing up to the problem and wanting some advice, and when they are there we need to make sure the services are really quick and can help them. I am sure there may be other factors as well, but I put quite some weight on that.

Q270 Chair: Have you assessed what impact legal aid cuts will have?

Mr Davey: I have seen a number of reports of that. We have had adjournment debates in which people have raised that in the House, and Questions in the House. Clearly for particularly some Citizens Advice Bureaux and other advice agencies, it may well have quite a big impact. What we have tried to do, and the Cabinet Office has organised this, particularly with Citizens Advice, is look across Government at the overall impact of the different changes that have been made.

Obviously you have local government, who are a major funder of Citizens Advice, as I am sure you are aware. We ourselves are a big funder of the national Citizens Advice service. We want to make sure, and this is work the Cabinet Office is doing, that there is not a cumulative effect that results in even worse outcomes. So I take the point, and I am afraid these are not easy times. There are cuts being made. What I am keen to do, and one of the reasons why we have now got the levy and the landscape review, is to make sure we are using the scarce resources as efficiently and effectively as possible.

Q271 Chair: Do you think the credit industry could provide more? At the moment it is 3%, I believe.

Mr Davey: Well this levy from this April will get £27 million to fund the faceto-face debt advice service that was previously coming from the taxpayer, so that is quite a significant shift in the direction you seem to be wanting.

Q272 Ann McKechin: There was some discussion in the evidence we took earlier, Minister, about the Scottish system, which has a kind of statutory debt management plan, and a number of the charitable agencies were in support of that. I wondered whether your own Department had considered implementing a statutory debt management plan south of the border, and changing the law.

Mr Davey: We have a statutory plan in the sense that individual voluntary agreements have a statutory basis. But I think what you are referring to is the idea that is in the Tribunals, Courts and Enforcement Act 2007, which will enable us by secondary legislation to bring in a different type of statutory scheme. The last Government consulted on whether they should bring that forward. The response to the consultation sounded one or two alarm bells, in particular that it would not catch everyone, because the way the legislation is written just does not allow people to make a profit. Therefore we exclude a lot of the providers, I think, that you are concerned about.

My understanding is in Scotland they had a similar scheme but then they changed it to get greater coverage. I am not saying that is what we are about to do. We put a lot of store by the IVA. The last Government tried to improve the workings of the IVA with an IVA protocol, which did have some effect in reducing the fees and some of the hurdles that had been put in the way of people accessing an IVA. We have the IVA; it is working better. However, I want to keep all options open as we explore this area, and it is one of the reasons why we have not suggested we take out that option of the 2007 Act, but I have mentioned that it has a few shortcomings.

Q273 Ann McKechin: Okay. Just on this issue about the transition period when Money Advice Service takes over the co-ordination of debt advice across the country, there seemed to be one or two comments you made today around the salary the Chief Executive Officer, the website development and whether or not that is a sensible way forward. Are you confident the Money Advice Service will be in a position to deal with the transition period from 2012? Are you confident that they have sufficient preparation in place to take over what is a task of great responsibility throughout the country at a time when demand for services is clearly increasing?

Mr Davey: I think they have shown in many areas some real understanding. I think they have their business plan, which has now been passed by the FSA-they have secured the budget. I think that will be welcomed across the sector, but we are waiting for the research and their report-I am sorry to keep coming back to that-and I think it is important that is of the highest quality so we can be reassured that the plans going forward are correct and are comprehensive.

Q274 Chair: Finally, Minister, one of the complaints we have had is that internet search engines, such as Google, tend to place with-profit debt management services higher in their list of search results. Will you be taking action to ensure, as part of parcel of enhancing the capability of the free debt management service, that Google change this?

Mr Davey: It is something that I have raised as well, because it does strike me that this can create some real problems. I would hope that the search engines would exercise some corporate social responsibility in this area. We did have the OFT looking at this over the summer, and they published some guidance on it. I think I quoted from it in my response to the debate last Thursday, on 1 December, and I talked about the fact that the OFT had looked not just at Google but all social media-Twitter, Facebook and so on.

They revised their guidance after the consultation, so it now states, "Licensees who advertise or sell online or by email must comply with the Electronic Commerce Directive, and before using internet-based and social media marketing, licensees should consider whether they can exercise adequate control over its content. The OFT considers that search engine sponsored links and online messaging forums which limit the number of characters are unlikely to be an appropriate means of providing balanced and adequate information." As I said at the time, that is slightly technocratic language to say that, if they rely on that sort of marketing and it is not giving the consumer the full information, they may well take enforcement action.

Q275 Chair: If I can just decipher that, you are looking at taking enforcement action if this continues?

Mr Davey: Well, OFT, I think.

Chair: OFT, yes.

Mr Davey: And I should also add, because I think it is an important point, that Citizens Advice are now working with Google on this issue. The protocols that we are looking at may also be able to cover this area to get agreement on what is appropriate for advertising in social media.

Q276 Chair: I suppose the logic is, if the OFT in, if you like, exercising its influence on that still fails to prevent this happening, will you look at it again?

Mr Davey: It is an area we will keep under review. I have raised it myself as a concern. But as I say, we have a number of actions already, and it was only this summer that the OFT consulted on it and has only just revised its guidance, so I think we ought to give that a little bit of time to work.

Chair: Thank you, Minister. That was very helpful. We will be assessing the evidence and making recommendations in due course. Thank you very much.