I beg to move, That the Bill be now read a Second time.
The Bill is the final stage in the most significant reform of domestic consumer credit law in almost 30 years. It caps the work begun by the former Minister with responsibility for competition and consumers, now the Minister for Public Health, who initiated the wide-ranging consumer credit review. Today, the Bill marks a major step forward towards a fairer, clearer consumer credit market for the 21st century. It will offer benefits to consumers and industry and fulfil our manifesto commitments.
I am pleased to say that, with so much support from hon. Members of all parties and their welcome for the Bill and the White Paper that preceded it, the measure will empower and protect consumers. It will increase competition and equip the credit sector to meet the challenges of the modern marketplace.
I am grateful to my hon. Friend for giving way so early in his speech, but those of us who are in Committee have to take what opportunities we can.
Will it be possible during the Bill's passage to introduce provisions to give the Secretary of State the power to put a ceiling on interest rates? My hon. Friend knows that some constituents are unwittingly led into credit agreements incurring interest rates and charges that can exceed 300 per cent. If such a provision cannot be included in the Bill, will he at least ensure that the measure provides for secondary legislation so that one could be introduced in future?
I understand my hon. Friend's problem with the Committee sittings this afternoon. I shall refer to ceilings on interest rates shortly but I give him the commitment that although we will not include such powers in the Bill, we shall keep the issue under review, for reasons that I shall mention later. I am sure that my hon. Friend will get a copy of Hansard and I am happy to meet him to talk about the matter.
We did not embark on reviewing and amending the consumer credit law lightly. The scope of the markets that we are considering is huge and the United Kingdom has one of the most highly developed credit markets in the world. We represent a quarter of the EU credit market generally and more than half of the EU credit card market. My right hon. Friend the Chancellor of the Exchequer said in his pre-Budget report last month that we had the best combination of low inflation, low unemployment and rising living standards for decades.
With the achievement of that macroeconomic stability, to which the Government committed themselves, we have enjoyed interest rates at a level not experienced since the 1950s. I understand that the Monetary Policy Committee said today that rates are to remain unchanged. Those rates have brought about improved access to affordable credit for consumers across the country, and the benefits of affordable credit are plain to see. When it is used effectively, a combination of sensible borrowing and saving enables consumers to enjoy the freedom that credit gives: freedom to improve their home, to take a holiday, or to buy the car that they need for work or family use.
However, one in eight households still have arrears on either consumer credit or household bills, with all the strain on families, on health and on well-being that that level of debt can bring. Sometimes, the effect can be even worse. We have heard hon. Members tell the House about tragic suicides related to debt. I have no doubt that in all hon. Members' constituencies, there will be casework that shows the level of abuse by unscrupulous lenders who prey on the vulnerable, and on the poorly informed consumer. I know that there are such cases in mine. They highlight the real human misery that underlies the statistics on debt.
More than half the households that are over-indebted have an income of less than £7,500 a year. I heard of one couple, both of whom suffered from mental illness, who were persuaded to take out a loan of £500. Within 12 months, the same lender had pressured them into taking out a further 10 loans, leaving them with a total debt of more than £5,000. That was 10 times the amount that they had originally agreed. The couple also owed another £19,000 to other lenders. Most importantly, they had no means to repay any of these loans. Thankfully, the couple were offered assistance by a local support organisation, and I am pleased to be able to tell the House that the debt was written off.
No humane society can stand by and do nothing to prevent this sort of predatory lending. We certainly could not, and we are not going to. That is why this Government are committed to toughening the laws to combat rogue traders, unfair terms in contracts, and loan sharks who prey on the vulnerable and use despicable tactics to ensnare their victims. But this commitment cannot be fulfilled by new legislation alone. Building a credit market for the future means not only legislating for consumers but working with them.
Is it not important that, as well as introducing this legislation, the Government encourage people who need to borrow money to go not to the loan sharks but to credit unions? These provide a very good way for people to borrow at fair and reasonable prices, and allow them to understand fully what they are committing themselves to.
My hon. Friend has pre-empted what I am going to say later. He is right to say that credit unions have a tremendous role to play. In the Chancellor's pre-Budget report, £120 million was given for a financial inclusion fund. The Bill needs to be seen in the context of all the other work that is going on in the Treasury, the Treasury Select Committee and the Financial Services Authority. This Bill is not just about credit; it is about the whole issue of financial inclusion.
I want to give a great welcome to the Bill. However, there is something rather odd in it that I want to ask my hon. Friend about, as he has been talking about extortionate credit. I want to ask him about the very unusual presence in the Bill of a maximum fine of £50,000 for those who are discovered dealing in extortionate credit, in contravention of the terms of their licence. It is very unusual to see such a maximum set down in a Bill rather than in secondary legislation. Will my hon. Friend consider this matter very carefully? It is 30 years since the Consumer Credit Act 1974 was put on the statute book, and it seems wholly inappropriate to fix in the Bill a fine for this despicable behaviour of which many of us, on the Labour Benches at least, have had direct experience through people visiting our constituency surgeries. These people have been viciously exploited by the sellers of extortionate credit.
My hon. Friend is right; all hon. Members will be aware of such cases. On the question of the £50,000 fine, there are issues relating to licensing regimes and the powers of the Office of Fair Trading, and a balanced approach must be taken. If my hon. Friend is lucky enough to serve on the Standing Committee, she will be able to probe and develop some of the reasons why the figure was set at that amount. There is a serious point relating to that, and I shall return to it in more detail if time permits.
We need to work with consumers. We also need to work with the industry to produce this legislation, to ensure that, together, the Government and the industry can provide information so that people can make informed choices and, more importantly, get help when things go wrong. We must also work with the regulators as well as legislating for them, to ensure that they have better, more appropriate powers to obtain information. That is what we are doing.
A good example of that is the cross-government strategy to tackle over-indebtedness. "Tackling Over-indebtedness—Action Plan 2004" sets out seven strategic priorities, and the 10 partnership priorities necessary to achieve them. The Government are working in partnership with consumer bodies, the credit industry, regulators, the voluntary sector and academia to address this problem. We are working together to increase the availability of affordable credit for vulnerable consumers, particularly those on low incomes; to ensure that timely and appropriate free debt advice is available for those who need it; and to improve the financial capability of consumers to ensure that they can make informed decisions about their borrowing.
On the question of informed decisions, does my hon. Friend recognise that, when comparisons are made between the charges for one credit card and another, it is virtually impossible for consumers to get an accurate impression because of the different ways in which the different companies collect their charges? Has he seen the proposals from the Consumers Association and Which? for a standardised method for the collection of credit card interest? This would enable consumers to make a proper comparison between the annual percentage rates of the different cards.
I am grateful to my hon. Friend for that intervention and I congratulate him on the work that he does in Sheffield and elsewhere on these issues. In regulations flowing from the White Paper, the Government introduced a uniform calculation of the APR. We talk about responsible lending and borrowing, but the difficulty arises because there are so many different charges that can be included in APRs and the like. It is important that clear and transparent information should be given to the consumer, not only when the agreement is signed but throughout its lifetime.
Does the Minister agree that, when people get into financial difficulties and need advice, the sooner they seek that advice, the better? One of the most accessible places for them to go is their local citizens advice bureau. Does the Minister share my concern that, as a result of local government settlements and grants, there are worries about the viability of some of our CABs and about their ability to give this important advice locally?
I acknowledge the hon. Lady's concern about CABs. She will be aware that the Department of Trade and Industry finances much of their work through national funding. Perhaps, however, she should have words with Members on her own Front Bench about future public spending issues. Clearly, if there were to be cuts in public spending, services such as those provided by the CABs would be at risk.
Is not one of the difficulties that many people take out a loan or get a new credit card without taking any advice? They do not talk to anyone about it. Instead, they pick up one of the 25 letters that they received through the post just before Christmas asking them if they would like a new credit card and are told that they are guaranteed to get a card and that they can have an advance of up to £3,000. Alternatively, they are sent a little cheque that tells them that they have £3,000 to spend. That is irresponsible lending. Those letters are unsolicited, and they offer guaranteed, pre-approved credit.
I was fortunate enough to be in the Chamber yesterday when my hon. Friend asked the Prime Minister a question on this subject. I am not going to be prescriptive about this, because if I were to give my interpretation of these matters, it could present a problem when we need to deal with dispute resolution and with the courts making decisions. The Bill makes provision for an unfair credit test, and that will involve the need to consider each individual case as it comes along.
On the question of credit card cheques, the banking code—the remit of the banks to work under a code of practice—is to be changed from April 2005, and an updated version covering the use of credit card cheques and the question of who they should go to will be a step in the right direction. I shall be monitoring that issue, and I know that the Treasury Select Committee is looking into it as well.
Following up that point, is there not a further concern that many people take up these offers without making the calculation as to whether a credit card—as opposed to a bank loan or some other mechanism—is the appropriate means of raising the funds that they need? Should there not be an obligation on credit providers to advise people that other, cheaper options exist, instead of simply soliciting their custom without giving them any advice or warning them that they might have to pay a much higher interest charge than they need to?
That goes to the heart of the issues of clarity, transparency and people making sure that they know what they are letting themselves in for. While the argument is about responsible lending, it is also about responsible borrowing, not just for the short term but for the lifetime of agreements.
My hon. Friend has just mentioned forthcoming changes in the banking code. Does he accept, however, that the changes envisaged in that code in relation to credit card cheques will not deal with the unsolicited issuing of those cheques? The White Paper, that his Department produced last year cites as an example of irresponsible lending the unsolicited issuing of credit card cheques, yet I cannot find any measure in the Bill to deal with that.
My hon. Friend is right. He is a distinguished member of the Select Committee, before which I had the honour to appear recently to discuss credit card issues. It has done a tremendous amount of work on credit cards. I think that the banking code is the appropriate route for addressing the issue, but I will keep the matter under review during the lifetime of discussions on the Bill I hope that he will be satisfied with that.
I want to take my hon. Friend back to what he said about DTI funding for financial support and advice. In Northampton, our CAB's money advice work was paid for by lottery funding, which has come to end, so nobody is doing that work now. Funding for such incredibly welcome and important work needs to be enshrined in statute, because people need to be able to exercise their right to seek such advice. Will the DTI therefore consider whether there is a proper national spread of available financial advice?
It is important to praise the work of CABs, but others, including industry bodies, local government bodies and a variety of other voluntary sector organisations, also offer financial advice. We will be looking to use some of the £120 million in the financial inclusion fund for debt advice and support. I want to make sure that easy access to such advice is available across the UK. People who find themselves with debt problems tend to leave it too late before they seek advice, and I hope that, as a result of this Bill and other work, people will know better where to go for advice and support. As a result of the Bill, people will be able to get out of unfair agreements.
I want to return briefly to the issue of credit card cheques. Will the Minister at least consider requiring credit card companies to make it absolutely clear, in bold letters, that the moment those cheques are presented, they cost the customer interest? I regard myself as a person of average financial sophistication, and yet I have fallen foul of that practice.
I refer the hon. Gentleman to the answer that I gave to my hon. Friend Mr. Plaskitt. These are serious issues, which I am prepared to examine, but this Bill may not be the appropriate vehicle for that change. I know that the industry will monitor closely what is said in the debate today and in Committee. One of the good things to note is that the industry has welcomed change—it recognises that the 1974 Act is 30 years out of date, that people's attitude to credit has changed dramatically, and that it needs to acknowledge the thoughts and views of the consumer. That is the balance that we are trying to strike.
As I said, the first Act was introduced in 1974, and at that time, there was one credit card carrying a total debt of around £32 million at today's prices. It took six years to put in place the detail of the 1974 Act. We have been criticised for taking some time to prepare the Bill, but I make no apology for that, because it is a complex marketplace, and very important to the economy.
I congratulate the Minister and his team on introducing this Bill and on the consultation process. Is he aware that there is an anomaly in relation to the time orders, on which there is a difference between Scotland and England and Wales? Obviously, the CAB in Scotland would be glad if time orders in Scotland were brought into line with those relating to England and Wales. Will he undertake to consider that in Committee?
The time order is an interesting, useful tool on which we need to do a great deal of work, for which the Bill provides. I will consider the various representations from the CAB in Scotland and elsewhere on how we can make the time orders most effective. I shall now try to make some progress with my speech.
We can see from the interventions by Members from across the House how important this Bill is to our constituents and to the credit industry. We were careful to consult at every stage. We could not have reached today's position without the continued support of all stakeholders: business, consumer groups and regulators. I thank all those who helped to get this legislation right.
Important though it is, the Consumer Credit Bill is not the whole picture. The Bill builds on the success of the consumer credit White Paper that we published a year ago. We have been doing considerable work with other organisations on many fronts. We have produced new regulations for credit advertisements, enabling consumers to shop around with confidence and to choose the best credit product to suit their needs. We have increased transparency across the sector by legislating for consumers to receive information before they sign up to an agreement. We have standardised the way in which APRs are calculated, so that consumers can compare the costs of credit deals with confidence. We know that many people found that a confusing issue—it was an issue to which the Treasury Committee devoted a lot of time, and we too are addressing it.
We have ensured that consumers are given clear, up-front information in the agreements themselves, in print which people do not need a microscope to read. We have introduced a fairer deal for consumers who want to settle their loans early. We have brought forward new rules enabling consumers to conclude agreements electronically, increasing financial inclusion across the sector. We have worked with colleagues in other Departments to provide regulations that ensure that consumers are protected when signing agreements away from business premises.
The Bill is therefore just part of our vision to provide protection for consumers in a fair, clear and competitive credit market. The Bill has three main themes: improving rights and redress, improving the regulation of consumer credit businesses, and ensuring appropriate regulation.
The current tools available to consumers for obtaining redress or solving credit disputes are, at best, limited. Where there is a dispute, consumers are often restricted to court action—a costly and time-consuming process. Where consumers are trapped in unfair agreements or subject to unfair behaviour, the current rules do not provide for adequate redress. I am sure that all Members are well aware of recent high-profile examples, such as the judgment last month in the case of London North Securities v. Meadows, in which an original loan of £5,000 soared to a debt of £384,000. Last month, the judge ruled that the agreement was unenforceable, partly because its terms were extortionate and failed to state correctly the terms of the loan. I am aware that the lender has appealed, and we await the outcome.
I congratulate my hon. Friend on introducing this long overdue measure, and colleagues in all parts of the House on ensuring that the measure was brought before the House today and not delayed. If the Bill is passed, extortionate rates of interest can no longer be levied on future loans, but schedule 3 also includes a welcome provision for those of us whose constituents currently have problems, to ensure that the courts can reconsider existing agreements during the transitional period. Constituents such as one of mine, Mr. Frederick Jones, of whom the Minister is well aware, need that redress. Will he be open in Committee to the idea of ensuring that that transitional period is brought forward, so that my constituents, and those of many other Members in all parts of the House, can get that redress early rather than having to wait at least two years?
I thank my hon. Friend for his compliments on the work carried out, but as I said, that work has been done by major stakeholders across the range. We are able to examine the possibility of retrospection because lenders themselves realise that their position and reputations are put in jeopardy when such cases come to the fore. I am sure that in Committee we can consider the detail of how best to use that provision to benefit consumers.
Following on from that point, one of my concerns is that while cases such as Meadows raise an anomaly, the court case deals with only the particular problem of that constituent or lender. I presume that the company has offered such loans to many other customers, who may not, for various reasons, have come to court, but who are in the same position. There seems to be no provision for forcing companies to allow some of their other lending activities to be examined. Would such a provision be feasible?
If the hon. Gentleman reads the Bill carefully, he will see that there is such provision in the form of the unfair credit test and the alternative dispute resolution procedure. We are improving the position, although if we find during the Bill's progress that further improvements are possible, we shall consider them. I believe that the reason why so few cases are brought is the high hurdle presented by the extortionate credit test. Lowering it by introducing an unfair credit test will improve things. I have already mentioned penalties, and the effect on the reputations of companies that do not act responsibly and fairly. The Bill gives the Office of Fair Trading powers to review the lifetime of licences that are approved.
As Members have pointed out, the Meadows case represents a rare success for the consumer. Consumers should have the right to challenge unfairness where it exists, and obtain redress when that is appropriate. The Bill, as I said, introduces a mandatory alternative dispute resolution system giving consumers a fast and effective procedure, without the need to resort to court action immediately. It will be run by the Financial Ombudsman Service, which is experienced in dealing with disputes of this kind, and it will provide an impartial ruling in any circumstances in which a lender's internal complaints procedure has been exhausted. Consumers will be able to challenge unfair agreements more effectively, and competition will be increased throughout the sector.
As I also said, the Bill will replace the out-of-date extortionate credit test with a new test based on the principle of unfairness. That will enable consumers to exercise rights that have previously been out of their reach. Consumers will be able to apply to the courts to reopen agreements involving an unfair credit relationship. The system will require consideration of all aspects of a transaction, including the lender's conduct in administering the loan. It will also give the courts a wider discretion to assist those who are unfairly treated by lenders.
Provisions on unfair relationships will act as an incentive for lenders who might exploit consumers to behave fairly, which will result in increased and effective competition throughout the market. Consumers will be empowered to challenge unfairness where it exists, and obtain redress when that is appropriate.
Empowering consumers by increasing their ability to challenge unfair agreements is our first aim, but consumers must also be confident that they are borrowing money from responsible lenders. Our second aim, therefore, is to improve the regulation of consumer credit businesses. The amount of work currently involved in licence renewal, together with the OFT's limited information-gathering powers and the lack of intermediate sanctions, hampers the OFT in both its running of the licensing regime and its policing of licence holders. The Bill will give it more powers, enabling it to obtain the information that it needs to ascertain and monitor the fitness of firms.
Overhauling the licensing regime will create more categories of licence, and will introduce indefinite standard licences, together with an improved fitness test based on the credit competence of licensees. The result will be a more streamlined, more targeted system that is more appropriate for the modern credit market.
Reducing the burden of bureaucracy on both industry and the OFT will also ensure that lenders acting unfairly are prevented from continuing and, if necessary, excluded from the market, that responsible lenders can be regulated by light-touch regulation, and that consumers can have confidence in a competitive market.
My hon. Friend is being very generous with his time.
I know that cold calling per se is illegal, but the excellent "debt on our doorstep" campaign—no doubt my hon. Friend has engaged in plenty of consultation with its members—has brought to our attention the way in which sellers use shopping vouchers and go on to estates, especially at Christmas, trying to induce people to buy without clarifying their rights. Could that practice be dealt with more effectively?
That is not covered by the Bill, but as the Minister with responsibility for consumers, I am looking into doorstep selling. The OFT has produced a report on which we have consulted, and we will make recommendations in the near future on the whole issue of cold calling. My hon. Friend may know that the Competition Commission is examining the home credit market following a referral by the OFT. A great deal of work is being done to ensure that consumers are protected.
Consumers often suffer because of lack of information during the lifetime of a loan. Under the current regime they are often surprised by arrears or default fees, or are not told when they are behind with payments. The Bill will make lenders tell consumers when they default and when they are charged.
I believe that that applies only to longer-term debts. Will my hon. Friend consider making similar provisions to cover shorter-term debts, and to prevent debts from being rolled over year after year? People may find loopholes in the Bill as it stands.
We think that the balance is right in the Bill. It will deal with burdens on business, and ensure that products that should remain in the marketplace are retained there.
Keeping consumers informed is an essential part of being a responsible lender. Consumers must know exactly what their debt is. The more informed consumers are, the more aware they will be of whether a product is appropriate for them. Improving the standard of regulation, however, will be of no use if regulation does not do the job for which it was designed. The Bill's third aim is to ensure that regulation is appropriate and measured, ensuring comprehensive protection for consumers while allowing industry the flexibility to innovate.
The Bill does ensure comprehensive protection, extending the protections in the 1974 Act to all consumer borrowing by removing the £25,000 financial limit above which consumer borrowing is not currently protected. It is appropriate and measured, maintaining the protections for business lending under £25,000. It allows industry the flexibility to innovate with an exemption for high net worth borrowers, enabling them to opt out of regulation. But lenders must also be confident that they are operating on a level playing field. The Bill makes the provisions in section 127 of the Act, on the enforceability of defective agreements, more proportionate. The remedy reflects the detriment.
Passing discretion to the courts will not remove consumer protection, because agreements can still be found unenforceable, but it will increase fairness across the sector and allow lenders to compete on the basis of best practice.
During our extensive consultations, we considered many other proposals. I am aware of campaigns to introduce an interest rate ceiling, which my hon. Friend Mr. Clelland mentioned earlier. The Government commissioned research on international practices, and decided not to introduce a ceiling in the UK credit market at this stage. We are not convinced that such ceilings help the consumers whom they are intended to protect. I stand by that decision, but as I told my hon. Friend, we are committed to keeping the matter under review.
I am grateful to my hon. Friend, who has allowed many interventions. I join those who have given the Bill a warm welcome. I am particularly pleased about what it will do not just for those with credit cards, but for those in the sub-prime lending market—the poorest of the poor, who pay the most.
Having campaigned for the Bill, should the Minister not include in it a power enabling him to act on the basis of his review of whether a cap on interest rates and charges is necessary? If he leaves that open, we may have to wait another 30 years for more primary legislation to get to grips with the issue.
I congratulate my hon. Friend on his work in the all-party poverty group and on behalf of the "debt on our doorstep" campaign. I know that we disagree about interest-rate ceilings, although I will keep the matter under review. I do not think that taking powers through the Bill will help at this stage, but I am happy to discuss what might be done. I hope that it will not be 30 years before the Bill is reviewed, because the issues affect our constituents. We must ensure that people are treated fairly.
My hon. Friend Mr. Pike mentioned credit unions. I declare my interest as a member of the board of the Money Tree credit union in north-west Leicestershire. Does the Minister accept that credit unions have shown the way forward with interest rate capping, in that the loan rate used is capped at 1 per cent. per month and has been for a very long time? They do have a transparent, equitable and open approach to this subject.
On interest rate ceilings, which we can discuss in more detail in Committee, difficulties can arise in terms of what is included in the annual percentage rate. Hidden charges for late payment, for example, can be left out and the situation can become unclear. We will doubtless discuss the detail of the pros and cons of interest rate ceilings in Committee, but I acknowledge the work of credit unions. Part of the difficulty for some credit unions in trying to get people to save has been that they are unable to get access to credit for 12 weeks. We have looked at using the social fund and the new financial inclusion fund to assist credit unions in their efforts to help those who need early access to credit.
The Bill will empower consumers and encourage fair standards throughout the industry, and it drives forward an agenda based on responsible lending and responsible borrowing. It equips the UK credit sector to continue to lead in its field not only in Europe, but across the rest of the world, and it sends the direct message to the industry that for those who act dishonestly or unfairly, there is nowhere to hide. Our loan shark pilots are a prime example of this. But responsibility cuts both ways. Consumers have a responsibility to take control of their finances, to use credit sensibly, and to seek support and advice at the earliest opportunity when it is needed. The industry has a responsibility to provide consumers with the information that they need; to ensure that when it lends, it lends responsibly; and to make sure that support is available when customers get into difficulties.
We said that we wanted to improve rights and redress for consumers; the Consumer Credit Bill will provide for this. We said that we wanted to improve the regulation of consumer credit businesses; the Consumer Credit Bill will achieve this. We said that we wanted to ensure appropriate regulation across the market; the Consumer Credit Bill will secure this. It has been broadly welcomed and I commend it to the House.
I note that the Minister hopes, with the leave of the House, to have time to make a further contribution in the wind-up. He will therefore have two bites of the cherry, so I have a number of questions to which I hope he can give an answer today, perhaps with the assistance of those in the Box, if required.
This is one of only two Department of Trade and Industry Bills in the Queen's Speech, the other being the Bill on equality, for which no publication date has been given. The Bill before us is therefore the only current DTI Bill, so it is somewhat surprising that the Secretary of State is not here to present her Department's flagship Bill. The Minister did not apologise for her absence. As he knows, this is not the first time that she has not deigned to come to the House.
The Secretary of State is in India on Government business. As the hon. Gentleman says, this is an important Bill, on which we have consulted widely, and I should point out that the DTI has confidence in its whole ministerial team. Strangely enough, under the Liberal Democrats, who want to do away with the DTI, or the Conservatives, who are not entirely sure how much spending they would allocate to it, we would not have a Bill such as this.
I am grateful for the Minister's explanation. I hasten to add that I meant no disrespect to him; I very much enjoy working with him—and sometimes at him—at the Dispatch Box. It would have been helpful to know that the Secretary of State was not listed to appear, and that today's arrangements were pre-planned. I am somewhat relieved to hear that she did not have to choose between being in London with the Prime Minister or in Africa with the Chancellor; instead, she decided to strike out on her own and go to India. [Interruption.] Labour Members clearly do not like being reminded of the proper courtesies of the House.
People have always wanted things that they cannot immediately afford, and there will always be others on hand with money to lend to them—at a cost. We cannot at all times follow Polonius's famous injunction in "Hamlet" to
"Neither a borrower, nor a lender be".
[Interruption.] Polonius, who was an old man, was indeed struck through after giving that sensible advice to a boy. Let us hope that no attempt is made to strike through this Bill, because as the Minister knows, it enjoys broad support.
"Many people are forced by necessity to borrow, sometimes on contracts that they do not understand, and at rates that realistically they may not be able to afford."
For precisely that reason, a previous Conservative Government introduced the Consumer Credit Act 1974. It regulates consumer credit and consumer hire agreements for amounts up to £25,000, and lays down rules covering the form and content of agreements; credit advertising; the method of calculating the annual percentage rate of the total charge for credit; the procedures to be adopted in the event of default, termination, or early settlement; and extortionate credit bargains. The Act also requires all traders who make regulated agreements to obtain licences from the Office of Fair Trading.
Of course, since the early 1970s markets for consumer credit have expanded significantly. Liberalisation of financial markets in the 1980s and shifting attitudes towards consumer credit have since contributed to an environment of greater financial sophistication. In 1971 one type of credit card was available. Today there are more than 1,300. Unsurprisingly, however, such rapid evolution of the consumer credit market has not occurred without serious consumer casualties along the way. The signs are that the number of casualties is increasing, not declining, under an increasingly outdated legislative framework.
According to the National Association of Citizens Advice Bureaux,
"The number of debt related problems dealt with by Citizens Advice Bureaux has risen sharply in recent years, growing by about 75 per cent. since 1997."
I would like to congratulate the outstanding citizens advice bureau in Winsford, in my constituency. It has helped many people, particularly those in very challenged social and economic circumstances who have already got into debt problems. In response to an earlier intervention, the Minister made the important point that citizens advice bureaux are not the only organisations giving advice on debt; others also offer advice to such people before insurmountable debt problems arise. However, CABs are among the best organisations for offering advice to those who have already incurred the debt from which they must extract themselves.
In the light of the praise that the hon. Gentleman is showering on CABs, can he assure us that they would not be subject to the proposed economies and savings in Government expenditure on which Mr. James and others are advising the Conservatives?
As usual, the hon. Gentleman makes a partisan point. I had hoped that, as Chairman of the Trade and Industry Committee, he would make an impartial one. Just as the Government have initiated the Gershon efficiency savings review, so the James report is advising the Conservative party. However, that report adopts a much more rigorous, bottom-up approach to efficiency savings. Whether the assurance that the hon. Gentleman seeks can be given will be determined by my right hon. Friend the shadow Chancellor. I am sure that where efficiency savings can be made, they will be made. No test would conclude that CABs should be cut, so I hope that the hon. Gentleman is not trying to suggest that the James review would recommend doing so.
All Members will join the hon. Gentleman in paying tribute to the great work that CABs do. In its briefing to Members for Second Reading, NACAB says that the £50,000 limit on fines for those who contravene the terms of their licence and deal in unfair or extortionate credit agreements ought to go. As the hon. Gentleman has spent the past few minutes praising CABs, and in the light of their expertise and experience, does he agrees with that assessment that the £50,000 limit ought not to be included in the Bill, and should go?
I am grateful to the hon. Lady for raising that point. I heard her previous intervention on the Minister, and she raises a fair question about putting the ceiling in the Bill. It is not unprecedented, but it is not common. We all work closely with the CAB in our surgeries and have a great deal of respect for it, particularly on debt issues. My hon. Friend Mr. Robertson will be leading for us in Committee, and I am sure that he will deal with that matter and explore it in greater detail.
The challenge for policy makers is to ensure that consumers are, in the words of Baroness Wilcox, "in control" of the credit they take. Consumer choice is rightly a fundamental principle of a free market economy and consumers must be able to exercise their choice responsibly on the basis of full information that will apply for the life of the contract, not just at the time of the initial transaction. That is particularly the case for people on relatively low incomes. If their choices and obligations are not made easier to understand, they will continue to suffer the increasing financial exclusion that has escalated during the last seven years. It happens that, under a Labour Government, the gap between rich and poor has significantly widened.
Like the citizens advice bureaux and the National Consumer Council, the official Opposition welcome in principle the Bill's aims of cracking down on loan sharks and unscrupulous lenders, helping consumers challenge unfair credit agreements, and making credit agreements more transparent and understandable. We must bear in mind the fact that the vast majority of consumers handle credit sensibly, and for them the credit market is an important aspect of managing their affairs. Those on low incomes tend to be more vulnerable to the vicissitudes of financial fortune, and I pay tribute to the many Church organisations, charities, local government organisations and other groups, as well as the CAB, for the important work that they do on behalf of people on low incomes in their communities. It is vital unrelenting work of almost immeasurable worth to society as a whole, let alone to the individuals and families concerned. A prime example is the Royal United Kingdom Beneficent Association.
When we legislate, we must be careful not to confuse the fact of debt with the cause of debt, and we should not lose sight of the growing evidence that the primary cause of debt is often linked to the heinous practice of over-aggressive marketing, particularly to low-income people. I have to say that that applies in particular to doorstep selling, although I recognise the slight distinction that we have to make when it comes to doorstep selling and the campaign focused on it. That activity is not always carried out by those traditionally labelled the pariahs of society—loan sharks. Over-aggressive marketing is carried out by others, too, but the Bill is strangely silent on that serious aspect of the problem. I hope that the Minister will take the opportunity to explain the Government's thinking on what appears to be a glaring omission from the Bill.
I now turn to the action against what are known as rip-off practices. The duty of lenders to treat customers fairly in today's consumer credit market is a particular feature of the proposed legislation. The present extortionate credit test is 30 years old. In that time, the test has produced only 10 successful cases. It is clear that the difference between the original loan amount and the amount demanded back by creditors established as extortionate by the original Act is failing to prevent enough undesirable exploitative credit arrangements. It needs revision.
We support the principle of clauses 19 to 22, which give the courts new powers to make judgments about unfair credit agreements, moving the focus away from credit agreements to the overall way in which the lender deals with the customer. However, concern remains about the details of the legislation. The CBI and others believe that the burden of proof that it places on traders, so that every creditor-debtor relationship is unfair until proved to the contrary, is extreme.
In that case, does the hon. Gentleman support the idea, already advocated by several Labour Members, of imposing a ceiling on interest rates, or at least a provision whereby the Government could, via a statutory instrument at a future date, allow for such a ceiling?
The hon. Gentleman raises a point that has already been mentioned in interventions. I heard what the Minister said as well as he did. I am not ducking the issue, but I will come on to the point later, if he will bear with me.
I ask the Minister now how he will carry out his duty of allowing proper scrutiny of his proposals. To avoid any suspicion of headline grabbing in advance of an anticipated general election, will the Office of Fair Trading guidance, at least in draft, be published and made available ahead of the Committee stage, starting in the usual 10 to 14 days' time? After all, that would be fair in the current context. Any answer in the negative, I would submit, would be unfair to those seeking to scrutinise the Government's proposals both here and outside this place. For the Minister to withhold that guidance on the definition of "unfair" would be a sharp irony, as well as unacceptable. I hope that, as a courtesy to the House and a fair service to all interested parties outside the House, a draft will be made available before the Committee stage starts. That will be crucial to understanding the potential operation of the Bill.
Part of the Bill deals with action against rogue traders. Again, like the National Consumer Council and NACAB, I broadly welcome the tougher licensing system introduced in the clauses. They will give the Office of Fair Trading more powers to set more detailed and relevant tests on who is fit to hold a consumer credit licence, to request more information from consumer credit businesses over fitness and practice issues, to place more detailed restrictions on the activities of licence holders, to impose requirements on particular licence holders where the OFT is dissatisfied with their conduct, and to impose civil penalties on licence holders in breach of the requirements.
In theory those powers are, if exercised with restraint and proportionality, sensible. However, there is a significant caveat, given the Government's record on expanding bureaucracy and red tape, and their tick-box approach, which experience shows is least likely to work, because it is no substitute for the judgment and responsibilities of practitioners. Clause 38 confers powers on the OFT to impose requirements on licensees and give the regulator potentially greater flexibility. The only present option is simply to kill or to keep a licence held by a firm that may have 100 or more branches. Businesses and consumers alike stand to benefit from the OFT's being able to require a single offending branch of a firm to address the matter with which it is dissatisfied, rather than having to choose between either ignoring isolated instances of bad practice or the draconian option of shutting every branch of the firm.
The Government have resisted—I believe rightly—the temptation to make high interest rates unlawful per se, and they have not applied interest rate ceilings. That deals with the intervention of Chris Bryant. However, in an interview broadcast on the radio on the Sunday before Christmas, the Minister said that such provisions would be unworkable. I am concerned because in the same interview he said—he repeated it this afternoon—that the Government would keep their fundamental policy approach under review, not least through pilot research being conducted in Birmingham and Glasgow. He said that if the power to introduce an interest rate ceiling were introduced, such a power could be introduced by the simple expedient of secondary legislation under the Bill. After what I have heard today, that may have been brought up to date. I agree that it would be unacceptable to confer such a power through secondary legislation, and I hope that the Minister will reconfirm that it would be done through primary legislation.
If there were a power in the Bill that allowed the Minister to introduce capping on rates and the charges that often compound the interest and take people from being £100 in debt to being £1,000 in debt, the Minister would not have to use it, but its existence would act as a signal to the markets that if they did not act responsibly, the Minister could act. Would that not be worth while?
I am grateful to the right hon. Gentleman. It is an interesting idea to have powers in a Bill to act as a deterrent against their ever being used—and from time to time, that is how it works out in practice. I accept that point.
It is not my position to make the Government's argument, but the Bill contains an unfairness test. As I understand the right hon. Gentleman's argument, he wants a new policy approach after all the research that the DTI has commissioned, especially on international best practice, has been gathered. I would insist that any new policy approach should be in the form of primary legislation. Otherwise it would exist only as a threat, rather than something that we could properly consider and scrutinise, as is the duty of this House.
I, too, have heard from many constituents who have suffered from that phenomenon. I suggest that the unfairness test would deal with such problems, but it is really up to the Minister to give a proper response to the hon. Lady. As I understand the Bill's intent, and therefore the basis on which the Opposition has assessed and scrutinised it, the unfairness test is intended to encompass the essence of what is fair or not fair about any compounding, or some compounding. That is not yet determined. However, the hon. Lady makes a fair point about the Bill: it lacks detail, which is unhelpful at this stage.
Clauses 44 to 51 provide new rights to receive information from lenders on the status of their borrowing at points throughout the lifetime of a loan. I am glad that the provisions cover the lifetime of the loan, because I have always regarded that as very important. The information includes annual statements for fixed-sum credit for a duration of more than one year; warnings on the consequences of minimum payments to credit cards; notice of arrears, accompanied by new advice sheets; notice of any sums charged as a result of defaulting on a loan; and notice of contractual interest charged after a court judgment has been made on a loan. Such regular information bulletins will hep to address the point about compounding that Angela Eagle rightly raised.
Notwithstanding the concern expressed by some in the consumer credit industry that sending formal arrears information notices to customers within 14 days of a missed payment may distress them, in our view NACAB is correct in its assessment that
"the provision of information to borrowers about events affecting the status of their loans is an essential safeguard against growing indebtedness".
However, let us be realistic. It is not good enough for the Government to insist that borrowers, especially low-income borrowers, receive a deluge of letters just so that the lender can prove its track record and leave a paper audit trail for the regulator, because people in difficulty often just put such letters in a drawer. People put their heads in the sand, and I have never known of any legislation capable of preventing that.
It is important to recognise that the relationship exists throughout the lifetime of the loan, not just at the time of the initial transaction. Other approaches can include the sympathetic phone call to help someone come to an arrangement, however small the regular amount and however long the period. That area is vital for low-income borrowers. I accept, however, that some low-income borrowers do not have a telephone—we need to root our proposals in the reality faced by many of these people.
As NACAB also points out, the proposed legislation does not cover extending the right to a statement to fixed loans lasting less than one year. I know that my hon. Friend the Member for Tewkesbury intends to pursue that point in Committee. As shorter loans are often charged at even higher interest rates and are also often "rolled over", a similar statement for fixed-term loans lasting less than a year might also benefit consumers. Such a statement might be issued at the mid-point in the loan.
In summary, these clauses demand of the lender a real commitment to a continuing relationship with the consumer beyond the initial transaction, which is best practice operated by many in the industry already—not least because it is in their interests to stay close to their customers at all times in all circumstances. The proposal extends the principles of best practice. But let us not forget that all too often, the real difficulty is persuading the borrower to contact the lender early enough when difficulties loom, so that a manageable and fair arrangement can be worked out.
The final principal measure in the Bill is a new route to consumer redress through the application of the financial services ombudsman scheme to consumer credit licensees, as outlined in clauses 59 to 61. The aspiration here is to provide more accessible and lower-cost dispute resolution processes. Although the measure has our tentative support, there is a lack of detail in the Bill, and we will want to explore the detail of the proposals carefully in Committee.
One reason for our caution is the last dispute resolution procedure introduced by the Government on
The CBI has also expressed doubts that the financial ombudsman scheme
"has the skills, expertise, experience, resources or the appropriate charging structure to be able effectively to take on complaints relating to a whole range of smaller transactions than it currently covers."
We will need to look carefully at the charging regime for smaller transactions.
I read that part of the CBI's briefing, but I challenge the hon. Gentleman to say what evidence there is for that point. I have used the financial services ombudsman in both large and small cases. His office does seem to have the expertise and can provide a cost-effective remedy for people with specific complaints. It is an excellent way to gain assistance for the public.
I, too, have some experience of the financial services ombudsman on behalf of my constituents, and the response has often been very helpful. The CBI must answer for its own evidence, but it is my job on Second Reading to ensure that the concerns that have been expressed by all interested parties are given a proper airing. I do not have an answer to the hon. Lady's question, but the financial services ombudsman himself said, in an interview on the "Money Box" programme, that he had real concerns about his office's capacity to cope with the volume of work. The Bill would inevitably add to that volume, not least because those involved in smaller transactions are just as concerned as those involved in larger transactions, but the unit cost to the FOS will be disproportionately higher. We must at least consider whether we have the capacity to deliver the intent in the Bill. The hon. Lady asks a fair question. I do not have the answer, but it is now at least on the record.
The CBI added that
"consultation on these matters was promised, but has not been forthcoming".
The Minister said that there had been a lot of consultation. I was certainly aware of that, but the Government also claimed that they had consulted on the proposal to scrap community health councils. My campaign four years ago proved otherwise. The Prime Minister had to write me a three-letter page of apology on that point. We had a decent campaign, but the councils were still axed—and something very much poorer was put in their place. Let me point out to the Minister that the CBI feels that it has not been consulted on these matters. We will naturally seek answers to these points in Committee, and we have already signalled that we will not vote against Second Reading.
Let me deal with the reaction of business to the Bill. We should not forget that all transactions have two sides. Members on both sides of the House have expressed their concern for people on low incomes and other vulnerable people. That is right and proper as part of the job we do on behalf of our constituents. However, that would not be an issue if there were not another party to every transaction. In broad terms, British business welcomes the Bill, but like us it has asked where the details are. I listened with interest to the exchanges about unsolicited credit card cheques with Mr. Plaskitt and my hon. Friend Andrew Selous, and I hope that that important issue will be explored in Committee.
Rogue traders are a menace to business, as well as to individual consumers. As the Federation of Small Businesses correctly observed,
"small businesses need similar protection afforded to consumers as entrepreneurs often use their house for security and lack specialist financial knowledge".
The British Chambers of Commerce commented that they
"generally support measures to tackle unfair practices in the consumer credit market".
"supports in general the principle of the approach in the Bill to provide greater transparency in consumer credit transactions and the ability to target those traders who deliberately set out to deceive consumers".
It is most unfortunate that the Liberal Democrat spokesman—the only member of his party to attend the debate—has disappeared, as I am about to tackle the Liberal Democrats' irresponsibility about the whole matter. They will have to read my comments in Hansard. We may take business's general approval of the Bill as complete disproof of the Liberal Democrats' simplistic and erroneous belief in the permanent struggle of interest between business and the consumer. I trust that the Minister will not have to suffer the same extraordinary diatribe against the high street banks from the Lib Dem spokesman—wherever he may be—that characterised his party's reaction to the Queen's Speech, issued to the Times Online, on
There is, however, justified concern about some of the specifics of the Bill. The first is the lack of clarity throughout the draft legislation, with, consequently, an over-reliance on secondary implementing legislation that is not, as everyone in the House must admit, subject to the same degree of parliamentary scrutiny. As I mentioned, the Bill sets out three sources of protection for consumers facing unfair practices: the unfair credit jurisdiction of the court, in clauses 19 to 22; the consumer credit jurisdiction given to the financial services ombudsman, in clauses 59 to 61 and schedule 2; and the guidance issued by the Office of Fair Trading mentioned in clauses 19, 30 and 41.
How will those different jurisdictions work together as a coherent system of consumer protection? Is the OFT guidance on the fitness of consumer credit companies for a licence sufficient? Will it leave businesses feeling informed and prepared, when the primary legislation states only—[Interruption.] Oh, the Liberal Democrat has returned; it is good to welcome him back.
Clause 30 states only that:
"The OFT shall prepare and publish guidance in relation to how it determines, or how it proposes to determine, whether persons are fit persons".
Will the guidance, even in draft, be available before the Bill goes into Committee? That will be crucial if we are to give the measure proper scrutiny.
What about clause 62, which gives the OFT powers
"to monitor, as it sees fit" businesses being carried on without a licence? According to the draft regulatory impact assessment—people such as me really do read those things—the estimated administration costs associated with the measures are £4.9 million a year. How can the estimate be so precise when the phraseology of the legislation is so vague?
The ambition of the legislation is justified, but the some of the drafting leaves much to be desired. As one interested party told me, the Bill is so vague that it is "not fit for purpose", with Ministers ducking their responsibility to propose the remit of the OFT, which Parliament should be setting rather than offloading it all on the OFT. There is a suspicion—I say no more than that—that Ministers are trying to avoid blame when the inevitable unintended consequences flow from a Bill in such an inadequately drafted state and/or that the Bill was drafted quickly so that it could be proposed today, to catch a passing headline in the run-up to a general election. However, we know how long the Bill's gestation has been, so I give the Minister some credit when I suggest that that may not be the answer.
I wanted to intervene on several of the hon. Gentleman's points, but resisted as I shall have a second bite at the cherry during the winding up. However, the time scale of the Bill is not about cheap headline grabbing; the issue affects many people in terms of poverty and financial exclusion. All parties welcomed the White Paper and the regulations that resulted from it. There were no votes against any of the relevant statutory instruments. The reason why the Bill has taken so long is that it is important that all stakeholders—the industry, consumer groups and the voluntary sector—move forward together. That is why so much time has been taken, but I shall answer many of the points that the hon. Gentleman has raised when I wind up the debate.
I am grateful to the Minister. The points about the length of time the Bill has taken to prepare were put to me by the interested parties we consulted before Second Reading, and I hope that I couched them in terms that suggested that the latter allegation was unfounded. Yet again, there is broad consensus at the Dispatch Box.
To avoid the practice of Ministers and officials relying on secondary legislation to implement costly measures briefly and vaguely alluded to in primary legislation, I ask the Minister to take note of one of the actions recommended in the Conservative party's latest policy document on business deregulation—it is one of which I am particularly proud, because I was responsible for it. We recommend conducting secondary regulatory impact assessments
"whenever the substance of an important regulatory initiative would be provided by the exercise of secondary powers by Ministers or agencies".
Interestingly, that is not currently a power, so I invite the Government to adopt our policy—in any case one of the Labour party's favourite pastimes, in words if not in action—as it would be so desirable in this case.
The Opposition's priority is always to ensure that any new regulation on British business, if it is judged necessary at all, is proportionate, and that we have the appropriate means properly to measure its proportionality. Over-zealous regulation of the consumer credit industry would result in the consumer ultimately suffering a lack of choice, accessibility and affordability, as creditors withdrew products and the market shrank. We share the CBI's concern that
"many of the significant policy areas have been left to . . . guidance from the OFT".
A regulator does not have the same accountability to Ministers, and through them the electorate, as a Department of State such as the DTI. A recent academic study found that the budgets of the main Government regulators have tripled since 1997, and the headcount has more than doubled. The Government's own quango, the Better Regulation Task Force, recently complained that there are now so many regulators that it is impossible to establish precisely how many there are. That was confirmed by the response to a parliamentary question that I received on
Given the significant new enforcement and law-making powers that the Bill awards to the OFT, it seems sensible, as the Consumer Credit Association suggests, to place a legal requirement on the OFT similar to that which currently applies to the FSA: that the regulator should take into account the need for proportionality, and the need to promote innovation and maintenance of the UK's competitive position. That is especially relevant since, according to the World Economic Forum, under Labour, the UK has fallen from the fourth to the 11th most competitive economy in world rankings.
Another major complaint from a range of interested parties is about the timing of the legislation. Interested parties could now consult Hansard to read the Minister's opening remarks; in the light of what he said, I need not develop the comments that I had prepared for Second Reading. As the Trading Standards Institute has noted with some concern, however, there is not much "room for error" in getting the Bill on the statute book before a general election, if it is right, as we learn from The Sun, that the Prime Minister has scheduled one for
The Prime Minister described the Consumer Credit Bill as an important piece of legislation—like his Chancellor, let us not go down the track of whose word we can believe these days—yet despite those assurances, the Secretary of State for Trade and Industry is not in the Chamber. We hoped that the Bill could have been introduced earlier, although I accept that the Minister has been working hard to build consensus. There is an absence of the detail that would have helped us to scrutinise it, which is surprising given the length of time that the Bill was in preparation.
In September 2003, the DTI published a research study, which found that 80 per cent. of people would welcome more information on their consumer credit rights; 56 per cent. of respondents deemed the language used on credit agreement forms hard to understand; and an overwhelming 84 per cent. believed that consumer loans should be subject to the same regulations regardless of size—in other words, that the £25,000 threshold should be removed.
I am pleased that the hon. Gentleman asked that question, as I take a close interest in that matter and shall deal with it almost immediately. Financial literacy education, as against numeracy, is vital not only as a safeguard against debt but also for the competitiveness, enterprise and entrepreneurial culture of our country.
Why was the Bill not included in the 2003 Queen's speech? There is real concern that the savings ratio has fallen by nearly half since 1997, and now compares unfavourably with those of other advanced countries. While our savings ratio is 5.5 per cent., according to the OECD the EU average is 12 per cent. The Chancellor has seen it fit to take £5 billion a year out of pension funds, supported by Parliament with its Labour majority. Labour's first Minister with responsibility for social security, Mr. Field, said:
"when Labour came to power we had one of the strongest pension provisions in Europe and now probably we have some of the weakest."
As my right hon. Friend the shadow Chancellor has noted:
"It took six hundred years of banking history for household debt to reach half a trillion pounds. Now, under seven years of Labour, this has doubled."
If the hon. Gentleman accepts that total household consumer indebtedness has reached £1 trillion—he seems to make something of that—will he acknowledge that total household assets have exceeded £6 trillion under this Government?
I am happy to acknowledge the balance of the asset calculation, but that does not relate to cash. Savings are what matter, so I was making my arguments in the context of the savings ratio, which has suffered such a dire collapse. That is especially important when we consider its relationship with debt.
According to the Bank of England, consumer credit is running at about £1.5 billion a month. Borrowing increases by 15 per cent. every year and the average household borrows 140 per cent. more than its combined income. The Bank of England goes on to state:
"This is above the levels in the US and most large EU countries . . . The continuing rapid build up of debt by many borrowers may be building up vulnerabilities for the long term."
The Conservative party takes the issue of consumer debt seriously, because unmanageable debt robs people of their security in the future and their independence from the state. That explains why we have set up a commission chaired by Lord Griffiths of Fforestfach to investigate all aspects of household debt. On Tuesday, the shadow Chancellor published six options to restore the savings culture, which is essential if people are to have security for the future and independence from the state.
We shall support the Bill, so it will not be we who prevent its safe passage through the House. Nevertheless, we are committed to giving it proper parliamentary scrutiny because it lacks adequate detail at present, which may, as a result, have unintended and adverse consequences for the industry and, ultimately, for consumers. The problems of indebtedness, which relate to a sophisticated and complex credit market and, increasingly, equally sophisticated and complex consumer demand, place a duty on the Government to supply citizens with adequate information, protection and education. That addresses the point made by the hon. Member for Rhondda.
Quite clearly, the sooner I sit down the better. I am grateful to my hon. Friend because that brings home to us how real the problem is. A proportion of that £10 million—something in the order of 10 per cent.—will be debt that it would have been wiser not to incur, which will inevitably put people in stressful circumstances. Some £1 million of debt will have been raised in the past half hour and that will cause untold stress, mayhem and perhaps tragedy, as we heard from the Minister. We should not lose sight of the gravity of the debate.
I return to my point about education, because we could make a positive contribution to financial literacy. Supply and demand are sophisticated concepts. The 2004 "Fair, Clear and Competitive" White Paper noted that
"for consumers to be able to make rational, well-informed choices about financial products", they need not only "access to information", but
"the ability to understand that information".
MBNA is a significant employer of my constituents as its UK headquarters is based in the city of Chester. I am visiting it next week to discuss with it all aspects of the Bill. Additionally and importantly, I shall discuss its ongoing commitment over several years to a big issue that is markedly absent—perhaps understandably—from the Bill: the provision of expert people, time and resources for the education of children in our schools in financial literacy to give them the basic levels of understanding to equip them to go out into the world and handle money. Of course, student debt is now heaped on people at a young age, so such a scheme will enable them to handle that responsibly and with understanding. I pay tribute to MBNA for the exemplary work that it already does to lead that field in Cheshire.
Anyone who has been in business knows that any investment in the education of a business's consumer market and those who will enter that market is a proper investment. The industry thus has a real responsibility to make such provision. Any hon. Member who has been a teacher will know that a teacher seldom wakes up in the morning and dashes to school to teach children about money. Teachers want to teach history, English and maths, so we need the extended resources to come from the industry itself. I suggest that we could add value to the Bill by considering such a programme, so I urge the Government to consider that seriously.
The Government's attitude to excessive and irresponsible borrowing is not an example that the citizens of this country should follow, especially the young. I hope that they have not left it too late to do too little. However, the Bill is well intentioned and I hope that the detail will prove that my last statement was not justified. We shall have to wait for the Committee to see that detail, but it would have been helpful to see it now.
I give a warm welcome to a long overdue Bill, because the current legislation on the statute book is not fit for purpose. I thank the Minister for his welcome appearances before the Select Committee on the Treasury over the past few years in which we have investigated the matter.
I hope for unanimity in the House on the Bill today because surely there can be little dispute about the key issues. The Bill will enhance consumer rights and redress, and ensure that the test of extortionate credit is replaced with an unfairness test. The need for alternative dispute resolution has been mentioned in the context of the Meadows case in Liverpool, but given that a case that started with a £5,000 debt rising to £385,000 took 14 years to go through the courts, we need a mechanism to take the matter away from the courts so that such cases can be settled speedily. The Bill will improve the regulation of the consumer credit business because the licensing scheme will be strengthened. I think that all hon. Members hope that the Bill will allow us to tackle the problem of loan sharks, which we have all been banging on about for many years. The Bill will ensure that there is more appropriate regulation when there is an extension of protection to all consumer credit by abolishing the financial limit.
The discussions that members of the Treasury Committee have held with witnesses showed that there was a general welcome for the Bill. For example, Ian Mullen of the British Bankers Association told me through correspondence that the timing was right and the Bill was drafted sensibly. Sandra Quinn of the Association for Payment Clearing Services said that the Bill would make transparency and marketing much better. John Vickers of the Office of Fair Trading, who has appeared before the Committee to give evidence about the matter, said that the Bill would ensure that credit regulations were relevant to today's growing market.
The Treasury Committee started its inquiry on the matter several years ago with twin objectives: transparency and a desire to ensure that the market was competitive. Those have been recurring themes since we first read Don Cruickshank's report on banking services. The Committee has been unanimous on that and, indeed, an official Opposition member of it recommended the Cruickshank report so that we could examine the matter in greater detail. We found a market in which the consumer was confronted by complex credit agreements, charging methods, credit cards and other unsecured loan products that often had opaque and ambiguous terms and conditions. We concluded that only when the consumer information is transparent and there are good, fair products will the market be truly competitive.
The Treasury Committee's concerns were aroused when we had a group of chief executives before us a number of years ago. When we asked how to calculate interest rates, one of them replied, "You need a bit of calculus." So we went to the university of Cambridge, to the deputy director of the Isaac Newton Institute for Mathematical Sciences. We gave him a Barclaycard with a £1,000 debt on it. After a whole afternoon's work, this esteemed mathematician sent us back a six-page document on how to calculate interest rates. It was beyond me, and I am sure that it would be beyond everyone in the House to understand how the interest rates were calculated.
It was beyond quite a number of people—certainly beyond chief executives whom we asked to calculate it when they came before the Committee.
So our concerns were aroused. We found that there were not one but two definitions of annual percentage rates in existence. We have been pushing the Minister and the Department of Trade and Industry to ensure that we have one APR definition. I believe that that matter has now been resolved, but I should like the Minister to reassure us and the public on that point.
Still today, the way in which interest rates are calculated means that we can have two credit cards with identical APRs and balances to be paid over the same period but subject to different amounts of interest, in some cases varying by about 70 per cent. The Minister must look at this issue. There are 10 different ways of calculating interest. For example, some credit card companies start calculating interest from the day of purchase. Some wait until the purchase is posted to the account. Some stop charging when the statement is issued. Some stop charging when the payment is made. Most credit cards offer interest-free periods for new purchases, but some apply them to all new purchases while others apply it to those accounts on which there is no outstanding balance. So there is a recipe for confusion and ignorance in the market today.
Does my hon. Friend agree that the way in which the company uses the repayment is also important? People may be charged different interest rates on different parts of what they owe. Usually the repayment is used to repay the part that is subject to the lowest, not the highest interest rate.
That is exactly right. I defy any hon. Member to explain to me in simple terms how their interest rate is calculated.
When we do not have information readily available, we do not have informed customers and we do not have a level playing field. The need for transparency is still as urgent today as when we took the issue up, even though advances have been made.
According to opinion polls, 80 per cent. of consumers are unaware of the differences in how interest is calculated, never mind being able to work them out. The industry has not yet made a convincing argument, certainly to our Committee, against some form of standardisation. The companies state that this is a competitive issue. The Committee and others do not take exception to that, but there must be some form of standardisation while retaining the competitive aspect. The last thing the Committee and others would want is to take away that aspect. We want it to remain. We have pushed hard on the issue of transparency.
As a result of our inquiry, the banks and credit card companies have introduced summary boxes on monthly statements. A number of them—not all—are making progress on minimum repayments. We know the concept of the monthly bill stating a minimum repayment. We asked two banks that came before us how long it would take customers to repay the full amount if only the minimum repayment was made. One said 18 years and nine months and the other said 24 years. That is if some of the capital is paid off. But some minimum repayments are only 1 per cent., so the capital is not repaid, and in some cases the customers would never pay their balance off. We are saying to the industry that surely it is right, in fairness to the customer, for that to be on the statement so that they can take an informed decision. If they see that it will take 20 years to repay the debt, perhaps they will do something about paying more to clear the debt more quickly. I am glad to report that both Barclays bank and Lloyds bank have made progress and put that information on the monthly statement.
There is also the issue of transaction and penalty fees. As we know, fixed fees are charged if payment is not made. There is concern that such fees could result in excess moneys coming into the banks. The banks tell us that they merely clear their costs, but not one has declared that publicly. Indeed, most of them say that they do not even declare it to their shareholders. As a result of our work, the Office of Fair Trading looked into the issue and asked the banks for that information. I hope, in the interests of the banks themselves, that they declare the information in public, because then they could reassure the public that the banks are not exacerbating the problems of indebtedness for low-income borrowers, which some groups such as Citizens Advice, the National Consumer Council and others in submissions to the Treasury Committee have said could be the case. We need that public declaration to provide that reassurance.
Mention has been made by some individuals of marketing. It is a big issue. We found in our inquiry a real case of a drug addict in a drug clinic who had been offered a £10,000 credit card loan by a company. He was going to take it up to feed his habit, but the supervisor in the clinic saw it and stopped it. I label that as irresponsible marketing. Companies need to do something about it.
Since the Treasury Committee undertook the inquiry, I regularly receive 40 or 50 letters a week from people all over the country on the issue. I will read one from an individual who said:
"My son 24 has a cluster of learning difficulties including dyslexia, dyspraxia, Aspergers Syndrome etc, a maths age of 12, cannot read print below 12 point and only half a page—but he holds down a job in known limits. He can enter into an agreement with a Bank or mobile phone company but the Data Protection Act prevents parents who primarily care for him from having details of commitments he makes.
In February 2002, his Bank"—
I will not name his bank; it is a major high-street bank—
"were made aware of his special needs and in June 04 I asked them not to raise his credit limit." But it was immediately raised from £400 to £650 automatically. The parent continues:
"by late August his overdraft was £660—Bank then convinced him to have a £2,500 loan at 19 per cent. (spent in 6 days)—the overdraft became £1,200 despite my warnings to Bank."
He then went for another loan of £10,000, which was spent in five days. The letter continues:
"Bank charges alone now amount to £200 on top of repayments and each time a statement is needed it costs £20."
The right hon. Gentleman has made an extremely important point. I know of a case in which someone wanted his elderly father to remain independent. However, he did not find it easy to cope with his father's financial affairs, so he sent a notice to the bank asking it to keep an eye on his account. The father never spent more than £50 at a time, but he lost thousands of pounds to a rogue roof tiler and builder. The right hon. Gentleman is making a strong and wise point—we must find an effective binding for high street banks. It should be possible to put them on notice, given that a son has no right to demand a power of attorney to conduct his parents' affairs and prevent them from being ripped off.
I am grateful to the hon. Gentleman for his support. I think that we are all at one on this issue. In my discussions with banks, credit card companies and others, we have pointed out that such action would help them as well as their customers.
The Treasury Committee found that data sharing was crucial. We have heard, and will do so again today, of tragic cases in which people commit suicide. They are a minority, but there is a tipping point for many people. However, information is not available for banks and credit card companies to assess an individual's needs and responsibilities, so a tipping point is reached and extreme consequences result. The Treasury Committee has written to the Information Commissioner and, along with him and the OFT, we are working towards all banks sharing full information on credit cards, as that could help to prevent situations arising in which consumers with a large outstanding debt relative to income manage to make the minimum repayment every month but none the less are struggling. If individuals make a repayment every month they do not come to anyone's attention. However, as I shall illustrate later, someone with 20 or 30 credit cards could be struggling, so the sharing of positive and negative data is extremely important. The Information Commissioner and the DTI have a role in ensuring that comprehensive data sharing is introduced. The lender must always assess an individual's ability to repay, but can only do so with full credit data. They need to make an examination of a customer's full credit commitments in relation to income.
The lack of data sharing hampers responsible lending. The availability of credit is good for our constituents and society generally. It helps individuals and families to achieve their ambitions, and meets their needs. However, we must make sure that the equation between responsible borrowing and responsible lending is in sync. Since the major banks appeared before the Select Committee advances have been made. Recently, one of those banks wrote to me:
"I wanted to say how pleased we were that the Committee recognised the progress . . . made in increasing the transparency of our credit cards. As we have said before, we are not complacent and believe it is in the interests of consumers and the business to find ways of increasing clarity and transparency. I can assure you that we intend to maintain this progress in the months ahead . . . We accept that many consumers do not yet fully understand the differences in interest charging methods between credit card issuers."
Clearly, transparency is still a long way off in the industry. Progress has been made, but the Government must be robust. I am not making any criticisms of the Minister, who has engaged positively with the issue, but it is scandalous that we have had to wait more than 30 years for a consumer credit Bill.
The country's £1 trillion debt has been mentioned. That is a sizeable sum, but we must remember that more than 80 per cent. of that borrowing is for mortgages on our homes, which are worth more than £3 trillion. If we add the value of other financial assets, including pensions, shares and stocks, the asset figure is well over £5 trillion.
Another key figure is the amount of disposable income spent on servicing debt. There are scare stories about debt, but 80 per cent. of it is for mortgages, which make people asset-rich. There has been a 50 per cent. increase in household wealth since 1997.
I accept that. We must keep the matter in perspective. The problem, as the Governor of the Bank of England stated when he appeared before the Select Committee on one occasion, is that 10 per cent. of the lending is unsecured so 10 per cent. of the population could be affected. The FSA recently stated that many millions of people still had problems dealing with their debt. Although we are not complacent, we recognise that the country is in the black but that quite a number of people at the lower end could be facing a real problem. They could be tiptoeing into disaster.
The financial services industry is a big industry. It is competitive and profitable, and I welcome that. However, the industry needs to adopt a more acute social dimension. The top nine banks collectively made £17 billion in pre-tax profits in 2004, but with the financial services industry recently being voted the second worst industry by consumers, there is an urgent need to rebuild consumer confidence. That must be a major priority for 2005.
For those tiptoeing into disaster, we need data sharing. We need to bring those who are over-indebted and those who are financially excluded into the wider financial sector network. I was sent information by a debt charity which looked into the situation and concluded that extreme debt is a growing problem. It examined three aspects—first, individuals with debts of more than £100,000. There were 815 clients in that group. The average debt was £114,000. Whereas 75 per cent. of people in that group had their own house and assets, 25 per cent. lived in a rented property and had no financial back-up. The question must be asked how such a situation could come about, where 815 people have average debts of £114,000.
The second aspect was the ratio of debt to monthly income. In the sad case of Dereck Rawson, who left a suicide note in May citing debt as the reason for taking his life, he had run up debts of £97,822 and owned 16 credit cards, but he had a monthly income of £1,473. That is a ratio of debt to monthly income of 66:1. How could anyone possibly pay off a debt of £97,000 with an income of £1,473 a month? There is a need for the industry to get its act together. There is a need for data sharing to ensure that industry good practice is not tarnished by the bad news resulting from such tragic cases. A 66:1 ratio of debt to monthly income is totally unacceptable. Urgent action is required to prevent it.
The third aspect that the charity considered was people with more than 16 credit cards. There were 178 clients in that category. The mean number of cards was 20 and the highest number that an individual had was 48. One can imagine a person with 48 credit cards making the minimum repayment of one or two pounds every month and getting himself or herself more and more into debt as the months go by. Surely we must have a sane system whereby an assessment is made of an individual's commitments so that we can prevent tragic cases from happening. That is in the interests of both the consumer and the industry. We will work with the Department of Trade and Industry and others to achieve that. I do not minimise the difficulties, but for the sake of a functioning, competitive market that is fair to customers we must achieve that aim.
Over-indebtedness and financial exclusion are important issues. The Government response to the Treasury Committee states that 3 million households hold no bank accounts. As we know from our constituents, individuals and households who are excluded from the financial community are also excluded socially.
The Treasury Committee is currently undertaking a short inquiry into cash machine charges and financial inclusion, and the Government have a lot of work to do in that particular area. We have taken evidence from the citizens advice bureau in Speke, Liverpool. Speke has a population of 10,000, but a free cash machine is not available and the cash machines all charge £1.50. The Government want to bring people into the financial network and advise people on low incomes not to withdraw all their cash at one time. If people go to their local convenience store to withdraw small amounts of cash, however, 20 to 25 per cent. of their benefits, or perhaps even more, may be taken away, so we must examine that issue.
The Treasury Committee has not drawn any conclusions and we are still taking evidence. According to the LINK website, the most affluent area in my constituency, Helensburgh, has no cash machines with charges, but other areas of Dumbarton and the Vale of Leven contain cash machines with charges. There were no cash machines with charges until 1999, when LINK changed its proposals as a consequence of the Cruickshank report.
The Minister and his colleagues must address this public policy issue: do we want to continue with a free cash machine network, where it is available, and have charging for convenience—we would need to define "convenience"—or will we move inexorably to a cash charging environment? The Treasury Committee has not drawn any conclusions, but it is a big issue if we are examining financial inclusion and fairness.
The best advocates in the financial services industry realise that they must do something positive to ensure that trust and confidence are restored. One company wrote to me the other day to say that introducing fair and transparent practices, stopping the use of misleading terms and conditions, making fees and charges reasonable rather than their being an excuse to make excess profits, and ensuring that products are easy to understand and involve simple processes would be a start.
I shall finish with a comment from the FSA document, "Treating Customers Fairly", which was published in July last year:
"The fair treatment of customers is central to consumers having confidence in the financial services industry".
The financial services industry is important for this country's economic well-being, but customers are important too. Let us get the right balance between customers and the financial services industry so that we can look forward to a prosperous future in which customers are treated fairly and the aspirations of individuals and families in this country can be achieved.
There has been a general welcome for the Bill, which was long trailed. I think that the Government will admit that it is, in a sense, overdue—they have promised it for a long time and it has finally arrived. So far, the debate has addressed a range of issues, demonstrating the concern on both sides of the House about the current credit regime and the need for legislative reform. It is not clear whether the Bill deals with a lot of the issues raised in the debate, and we will need answers to many questions on Second Reading and in Committee to clarify exactly what the Bill is designed to achieve.
That is a crucial point. Many of the issues raised by my right hon. Friend Mr. McFall fall within the remit of Departments other than the Treasury. In my contribution, I said that we must examine the whole matter, including what is being done by the FSA and Treasury Ministers. No one has said that the Bill will catch everything.
I am grateful to the Minister. I am not saying that that was the claim; all I am saying is that a Bill called the Consumer Credit Bill will give people expectations that the legislation may not be able to fulfil. It is in the Government's interest to address that and it is important that we clarify what it is designed to achieve.
As Mr. O'Brien suggested, some of the definitions in the Bill are less than extensive. Its full effectiveness can be determined only once it is enacted and tested by experience. The same applies to compliance costs.
The Government propose to extend the existing licensing scheme and ombudsman service, in particular by introducing powers to deal with unfair relationships. That is probably the right approach, but time will tell whether it meets consumer expectations. It is 30 years since the previous relevant Act, and it is interesting to observe that at that time borrowing on credit cards, for example, amounted to £32 million, while now the sum stands at £49 billion. That is a huge change. I will be interested to discover the extent to which the Minister believes that the Bill will deal with unfair relationships in relation to credit card abuse.
I pay tribute to those in citizens advice bureaux and other advice centres who wrestle daily with the problems of people struggling with debt, and help to resolve their problems by giving them practical advice on how to deal with financial institutions and on how to reschedule, or sort out their personal debt in other ways. The citizens advice bureau that most directly covers my constituency is in Peterhead, although Aberdeen deals with some cases. We have smaller information and advice centres in rural communities, which are not involved with or funded by the CAB, including GRAIN—the Gordon rural area information network—the Turriff advice centre and the Keith advice centre. They operate on very small budgets, and many of the people who work for them are very low paid and do it out of a desire to help rather than for the money, or in some cases work as unpaid volunteers. Despite their small budgets, those centres deal with thousands of cases a year and provide real practical help. Perhaps this comment is directed more at the Scottish Executive than at the Minister's Department, but more recognition and funding should be diverted to such smaller organisations, especially when compared with the substantial amount of money that goes to the CAB. That said, I do not in any way undermine the value of the CAB work.
Several Labour Members have commented on the desire for a maximum interest rate. The Minister has made his position clear, and I broadly agree with it. I understand why the "debt on our doorstep" campaign and others want a specific reference to that to be included in the Bill. However, having listened to both sides of the argument, it seems to me that many of the small-value credit arrangements are effectively dependent on fixed-price charging for debt collection, which is beneficial to both parties because it is clearly understood. That could fall foul of a maximum interest rate. Having said that, several Members referred to cases in which much more unscrupulous mechanisms have been used whereby people are encouraged to roll over debt on increasing rates of interest with additional charges, to the point where by no stretch of the imagination can they be described as anything other than extortionate.
From what the Minister said—and the hon. Member for Eddisbury agreed with him—we may presume, hope and believe that the unfairness test will catch that practice. The difficulty for Members who want a maximum interest rate specified in the Bill is that that presumption is not provable until it has been tested. I fear that what might happen is that organisations such as the Catholic Fund for Overseas Development will find that they cannot safely operate the kind of arrangement that has applied in the past and which they honestly believe to be mutually beneficial. Such organisations would withdraw from the market and only the criminal fraternity would take on the loans. By definition, its members are outside the reach of any Bill because they do not operate under the law. There is a debate to held about that but we need to take that serious point on board. I have no doubt that an amendment will be tabled and I have no problem with that. However, I hope that those hon. Members who are concerned will ultimately be satisfied that, if the Bill is enacted in its present form, it will quickly establish a test case, which will cover the examples that they have mentioned. I would be surprised and disappointed if the extortionate rates that have been charged in such examples could pass a fairness test. I therefore agree with the Government's approach.
The Committee that Mr. McFall chairs has been active on the issue in the past year or two. My hon. Friend Norman Lamb, who serves on the Committee, has also been active and kept me apprised of much of the Committee's activity. [Interruption.] Indeed, my hon. Friend has kept the press apprised of that, too. That is a wise course of action for a good Member of Parliament with a small majority. I pay tribute to him for his constructive behaviour as a member of the Committee.
Focus has been placed on the practices of what might be described as the mainstream of credit—the role of the high street banks, the main financial services companies such as MBNA in Chester and so on. Nobody suggests that they are sharks or rogue traders, but they work in a lucrative market and deal with millions of people, and they are adopting practices that at least raise eyebrows. I am interested in the extent to which the Bill can tackle those practices. It is important for the Government to clarify that and to explain how practices that the Bill does not tackle could be identified. There is an expectation and a desire for the industry to put its house in order, if necessary through legislative pressure.
We all accept that there is a dynamic in credit products that we do not want to suppress. We do not want to frame legislation so restrictively that it discourages new products. Chris Bryant made an interesting point about unsolicited cheques, pressure to take out loans and 0 per cent. introductions. Of course, he raised legitimate concerns but some people can use such products effectively and to considerable advantage. We need to find a mechanism that warns off and protects people for whom such products are inappropriate, without killing them off for those who can benefit from them. There is a constructive policy debate to be held about how to achieve that.
Although it is clear that financial companies have induced people to take up inappropriate credit—the wrong credit instrument or a credit that they cannot afford to repay—it is comforting that some complain that they have lost £1 billion a year through the astuteness of those who have managed to use 0 per cent. introductory fees, roll them over and not pay any interest on anything for a considerable time. Of course, we all ultimately pay for that, but it is important that the process of regulation is about trying to help people to make informed decisions and prevent them from being pressured into making inappropriate decisions.
The Government could help us to adopt two or three instruments that might assist in the process. The transparency of interest rates has already been discussed. I accept the point about financial literacy but it is a basic requirement of credit to know what the interest rate is. I therefore concur with the right hon. Member for Dumbarton and the Consumers Association that one standard method of presenting interest rates is desirable and, preferably, some broad agreed procedure about how they are applied. One method of calculating them is certainly desirable so that people can make a direct comparison and know that they are comparing like with like, not apples with pears.
I would go further and say that it might be helpful for the Bank of England, the FSA or some other appropriate body to publish an annual average or a range of figures so that people can make a comparison. Perhaps there should also be a requirement that this information should be drawn to people's attention when interest rates are being offered. Along with the 0 per cent. rate, and the introduction of the bonus interest rates, there are credit card interest rates as low as 7 or 8 per cent., yet some store card rates are well over 30 per cent. With the rate of inflation at 2 per cent. and the Bank of England interest rate at 5 per cent., those represent very high rates of interest, and the differences between the available rates are substantial. People ought to be aware of the ways in which they might be able to get a cheaper rate.
The hon. Gentleman is trying argue that if there were a standard APR calculation, customers could use it to make comparisons about the cost of credit. Does he accept, however, that they could not do so, because the APR is only a small part of the picture? They would have to look at the whole range of features of the deal to work out the cost. In fact, the only way in which a consumer could access a useful assessment of the cost of credit would be if a cash-based illustration were available—not one based on APRs—but the industry is vigorously resisting the provision of such information.
That is a fair point. I agree that the APR is an imperfect measure that does not provide the whole answer. Nor would I suggest that we should back off from going down the route that the hon. Gentleman suggested. People need a clearer illustration of how they can make comparisons between different cards, so that they can make rational judgments.
People should also be apprised of the fact that a credit card might not be the appropriate instrument for their credit requirements. The chief executive of Barclays bank let the cat out of the bag in that regard. He was making the perfectly reasonable point—although it probably did not sound too good from his board's point of view—that there are horses for courses. A credit card is not an appropriate vehicle for long-term borrowing, yet many people are seduced by the 0 per cent. offers and the cheques and get themselves into debt. In reality, however, they could probably alleviate their problems simply by transferring the balance to an organised bank loan. After all, if the banks are prepared to offer all these different rates, they ought to be able to provide them. Yet people are not advised that these options exist unless they go to a CAB or some other useful adviser. Why should we not require a notice to be added to a credit card application to say, "Please inquire whether there is a cheaper, more appropriate way of dealing with any loan that you require over any period longer than the very short term", along with introducing a duty to give impartial advice on that. That could help the consumer.
About a year ago, I made a calculation on store cards and credit cards, just using the average costs of repayment. I did not examine the extreme rates; I just looked at the medium ones. On credit cards, the difference between the highest and lowest averages meant that consumers were paying £3 billion a year more than they needed to. The financial services industry, through its own inertia, was benefiting from that amount each year. I am not suggesting that it is improper to make a profit or that banks should not be profitable, but they are sitting back and making profits from people who are paying well over the odds and who could easily and quickly find cheaper forms of credit. We should provide those people with assistance, and I am simply making a few suggestions as to how we might do so. The Minister will find out that if the Bill—or any alternative measures introduced simultaneously—does not really do anything to address these anomalies and abuses, the people for whom this is a big problem will turn round and ask, "What was this Bill all about?"
Angela Eagle, who has now left the Chamber, was obviously concerned about the penalty proposed in the Bill. Another penalty—perhaps the nuclear option—would be the withdrawal of the licence. Yet another would be for the lender to lose the entire repayment because the agreement was not enforceable—although that might not be a penalty, if the agreement were really extortionate. I share the hon. Lady's view that the amount set for the penalty does not need to be in the Bill.
Certainly, I would be interested to see whether some different mechanism could be used. Legislation lasts for a considerable time, and the impact of the penalty could diminish. I accept, however, that individual transactions are concerned, so I guess that in a class action, or in a number of different but related actions, a company could be fined £50,000 several times over, in a cumulative hit, which might make the penalty much more significant.
The way in which the hon. Gentleman has raised this point suggests to me, given the interactions that we have had so far, that the Minister might want to consider matching the idea of a nuclear option, albeit with a much more sensible, confined option whereby one can close down a branch of a company where there has been a transgression, rather than exercising the much more draconian option of closing down the whole company. A £50,000 capping rate could be applied, if for some reason the Minister persuades us that that needs to remain in the Bill, per branch rather than per corporate entity. That might have a proportionate effect, depending on the scale of the damage.
Actually, it is possible to interpret the Bill as worded in that way, and clarification would be helpful. It would be extreme to act against a company with 200 branches and fine it £50,000 times 200. It would be right to fine the branch, or the company on its behalf, that perpetrated the offence. Certainly, the issue needs to be explored a little further.
Mr. Luke asked about time orders as they affect Scotland. As I understand it, lay representation is possible in relation to time orders in England and Wales but not, apparently, in Scotland. If the Minister has not done so, I suggest that he consult the Scottish Executive, as a Sewel motion, or some simple mechanism, might allow us to bring the legal position into line. It seems to me that there is a desire for that change in Scotland, and there is no point in the Scottish Parliament having to deal with the issue separately. If the Scottish Executive are agreeable, I urge him to report back on that.
As I said at the beginning of my remarks, uncertainty about the effects of the Bill can only be resolved by practice. The hon. Member for Eddisbury has suggested, and will no doubt produce, amendments to try to tie down some of the terms of the Bill more specifically. My experience of dealing with the Office of Fair Trading, on which he and I have had a number of exchanges, is less than satisfactory in a number of cases. It does not regard itself as a consumer association but as a competition agency, which belies its title and people's expectations of its title.
If I may stray marginally, to illustrate this point, I have been exercised by a concern about estate agents and the need to license them. In my view, the OFT examined that and came up with a totally windy and weak response. There is an estate agents association, which has its own terms of reference that could have been adopted for all estate agents. That association would have acted as a consumer protection agency. The OFT concluded that it was not its job to protect the consumer, but only to determine whether there was fair competition. I am concerned that the OFT's psyche is not always what I would expect it to be. Giving it too much discretion may mean that it even disappoints the Minister in terms of what it is required to do. Certainly, some clarification and debate in Committee would be necessary, to put it no higher than that.
On my final concern, I accept that the compliance costs as stated in the Bill do not appear unduly large in relation to the total value of the industry. Nor do I have any special brief on behalf of the companies which, in most cases, would probably have little difficulty in meeting them. Nevertheless, that can only be an estimate, as there are too many uncertainties. I am not suggesting that the Department has not made its best estimate, but in many cases, the courts will decide, the matter will be referred to the ombudsman, or information may be required. We do not yet know the environment in which information will be required but we hope that the ombudsman and the spirit of the law will reduce court involvement and that many of the cases will be resolved long before they come to court. Surely that will be one of the great benefits of the legislation if it works properly.
Until we know how the balance works, we cannot be sure of the compliance costs. I urge the Government to review the arrangements in practice, to establish whether all the mechanisms are working cost-effectively, efficiently and not in too burdensome a way. Given that European legislation is emerging in parallel with the Bill, I also urge the Government to ensure that the two are complementary and that there is no duplication. We do not want costs to be doubled unnecessarily.
Although we all like to make a big issue of concerns about regulation for political purposes, I trust that the House in general accepts that legislation should not involve unreasonable compliance costs and should not be unnecessarily bureaucratic, but should be fit for the purpose and pitched at a level that will enable it to deliver the end result; and that we should review it to establish whether we have overdone it, or gold-plated it to a greater or lesser degree. In view of the uncertainties in the Bill, it would be helpful if the Government committed themselves to reviewing it, perhaps publishing a report in four or five years.
Having said all that, I will end by saying that I welcome the Bill. The general consultation has clearly produced a good deal of consensus. What the Bill will deliver is not yet entirely clear—I hope that the Minister's reply and, subsequently, the Committee stage and Third Reading will provide further elucidation—but I hope that it will genuinely deliver more protection for the consumer, a better-informed public, and an industry that, while continuing to innovate and to develop new products, remains conscious of its social responsibility and general duty to be fair. I hope that we will end up with a vibrant credit industry which, nevertheless, leaves people less prone to the dire debt into which some have got themselves.
I am glad to have the opportunity to speak—but observing how many others still wish to do so, I have put a red line through much of what I was going to say.
I support the Bill, and most of my speech will be devoted to explaining why I believe it is necessary. It is very much in line with the Government's policy of reducing the number of children in poverty. As has been pointed out several times today, the poorest section of the community is ripped off most by extortionate interest rates and hidden charges. The section of the community that can least afford it pays the highest penalty and suffers the most. The Bill attempts to tackle that.
Which? and the Consumers Association also welcome the Bill, but want it to go a bit further. The association has expressed concern about annual percentage rates, which a number of Members have mentioned, and about irresponsible lending. How can lenders be responsible if they do not take into account the full credit history of those to whom they lend, and do not know what debts and other problems they may already have?
The Consumers Association has referred to
"sneaky tricks and hidden charges", which have also been mentioned today. My right hon. Friend Mr. McFall mentioned charges for late payment and the exceeding of credit limits, which tend to take no account of whether the limit has been exceeded by only £1, or for only one day. Such charges can be totally unfair, and they are much more prevalent than we realise. Last year one in four people with credit cards incurred a penalty charge at some stage, and Which? estimates that the credit card companies took £427 million as a result. That is a major problem.
As my hon. Friend Chris Bryant pointed out, every time we open our post at home, we are bombarded with letters offering us money, and even cheques. On the television and in the press, such organisations are constantly throwing money at people. But they do so indiscriminately, throwing it at those who cannot afford to borrow it, and without taking into account their particular situation.
Mention has been made of the NACAB, to which I shall refer extensively. Burnley District Citizens Advice Service provides a very good debt service. There is only one problem with it: there is too big a queue of people waiting to see its advisers. So that the advisers can do their job properly, analyse people's circumstances and give good advice, such people unfortunately have to wait, yet they might desperately need such information, and quickly. None the less, the Burnley advice centre does its best—indeed, it does an excellent job.
According to the NACAB report "In too Deep", which was published in May 2003, in the five years to 2003, CABs reported a 24 per cent. increase in the number of new debt inquiries and were dealing with more than 1 million a year. Over the same period, inquiries about consumer credit debt rose by 47 per cent. According to a NACAB survey of those seeking advice about debt problems, about three quarters of all clients were on incomes lower than the national average. Almost a third said that they were claiming income support or income-related jobseeker's allowance, and 13 per cent. said that their wages were being topped up by tax credits. Those percentages are much higher than those for the population as a whole. These findings suggest that people on low incomes and benefits find it difficult to budget without accessing credit, and that similarly, they struggle to repay such debts. The Government are committed to trying to help such people—the poorest section of the community—who are currently at greatest risk.
A Lancashire CAB told the "In too Deep" report that one of its lone parent clients in receipt of income support owed more than £12,000 to four creditors. Bankruptcy had been discussed with the client, but she could not afford to raise the £250 deposit fee for the Insolvency Service. The CAB negotiated token repayments of £1 a month to her creditors, but it would have taken her more than 250 years to repay the total debt. The result was unpleasant calls from debt collection agencies and a great deal of distress to the client.
A 2001 survey of CAB debt clients showed that each had an average of five and a half debts, totalling more than £10,700 per household. The debt-to-income ratio showed that the average debt was nearly 14 times the level of income. Of course, total debt includes elements such as council tax debts and money owed to catalogues; I am not suggesting that it consists entirely of credit card debt.
The provision of credit to low-income consumers is on the increase, and given that their circumstances increase the need for such credit, it can prove very costly. A CAB in the north-west told those who compiled a NACAB report of December 2000, entitled "Daylight Robbery", of a new practice used by a mail order company. It appointed company representatives to take orders and collect payments, adding an interest charge of 90.5 per cent. APR for that "extra service" in doing so. In one case, a CAB client who purchased a suite through the catalogue in question paid £15 a week for 40 weeks. She thought that that constituted full settlement, but was then told that she still owed what was a very substantial interest charge.
High-cost products can also be a problem. In the "Daylight Robbery" report, a Lancashire CAB tells of a client who had replacement windows installed at a cost of £5,150. After paying the deposit of £1,150, she was persuaded by the company in question to take out a loan, which it arranged. The agreement required her to pay £96.48 a month over 10 years. That comes to £11,577.60. The client was unaware that the loan would be over such a long period, and after three years she realised that she could get a better deal elsewhere and asked for a settlement figure. The figure quoted was £6,323—£1,173 more than she had borrowed in the first instance.
Although there are cooling-off periods, the reality is very different, especially when high-pressure selling techniques are applied to people in their own homes when they are already under pressure. Clients have their problems aired on TV and elsewhere, and there is no doubt about the reality of the problem.
It is not only high interest rates that can trap someone in debt. People with credit cards with low credit limits can find that the addition of administration charges can soon make a debt spiral out of control. The CAB report refers to a Lancashire client who had a debt on his credit card of just £200. He fell ill, had to stop work and claimed incapacity benefit. The credit card company would not accept the offer of repayment that the client made, and continued to add interest and late payment charges. By the time the credit card company finally agreed to accept his offer and suspend the interest, the late payment charges had increased the £200 debt on the card by 150 per cent. That is the nonsense that many people face.
Finally, I want to deal with consolidations. They are advertised on the television and Carole Vorderman sometimes comes on the screen in the mornings. People know her and her expertise in mathematics from her role in "Countdown", so they listen and believe that she offers a way forward. They often do not realise what the small print says—that taking a consolidation loan might mean securing it with their homes. If people cannot pay in the first instance, and then they cannot pay for the new consolidated loan either, they put their homes at risk as well. A consolidation may be appropriate in some cases, but not in others. People must think carefully before opting for one.
I spoke to a credit card company at the weekend and heard about offers to transfer cards to zero rate and so on. While I was talking, the woman asked me whether I realised that 0 per cent. up to April is not as good as 3.9 per cent. for the lifetime of the loan. Depending on when and how one wants to pay, that may well be true, but people do not look carefully enough at the conditions.
I could say a lot more about such issues, but I shall finish by citing a letter from a constituent that I received in November. I have written to the two companies named in the correspondence, but I will not name them here today. I wrote on
"A few years ago I took credit with the . . . company so I could have some repairs done to my car. The original amount was for around £470. I got into some financial trouble after I separated from my wife and handed all my debts to . . . debt management company, who have been handling my debts for about four years".
He now owes £1,174—more than he started off with, after paying for several years. The company has not, as I said, had the courtesy to reply to me. It is that type of rip-off exercise that I hope the Bill will deal with.
I have great respect for the Minister, who has admitted that the Bill will not tackle all the problems. That is true, and we need the Government to take further action. Which? said that it would be good to go further, and I agree. I hope that the Minister will not soften the Bill in Committee. If anything, he should make it tougher, which would do a great service to the many people in this country who are being ripped off.
This will be a largely consensual debate, because each and every one of us has had constituency cases through which we have become familiar with the suffering that unmanageable debt can cause. I welcome the new legislation, which is aimed at providing a fair deal for customers. It is necessary because household debt broke through the £1 trillion barrier in July last year and is predicted to rise to £1.1 trillion this year. It took 600 years of banking history for household debt to reach £0.5 trillion, and it has doubled, while the savings ratio has halved, since 1997. Interestingly, in an intervention in the speech by Mr. McFall, the Minister said that household wealth had doubled in that time, and that illustrates the declining propensity to save.
As many as one in 20 households now pay up to a quarter of their income in consumer credit repayments. Many families and individuals have combined mortgage and credit card debt that will become unmanageable if interest rates rise again—there were five increases last year. People who overstretch themselves leave no margin for an increase in repayments and are heading for trouble. Recoveries by bailiffs are increasing dramatically, and debt advice centres are facing unprecedented demands for help. Behind each of those examples are stories of misery for the families involved.
Greater transparency and simplicity is needed in the consumer credit and loans industry, but it is important that our new measures have a positive impact on business as well as benefiting borrowers. I shall concentrate my remarks on the changing social attitudes to debt. The explanatory notes attached to the Bill refer to the Consumer Credit Act 1974 and the term "hire purchase". We do not hear that much these days, but I recall when it was first introduced. It was talked of in shocked whispers. The word "hire" in that phrase illustrates the attitude to credit then, as it implied that people did not own the item that they had borrowed money on until they had made the last repayment. Until then, it was only on hire and still belonged to the company that had provided the loan.
Attitudes have changed completely over the years. It is now regarded as smart to use other people's money, especially when it comes to credit cards. We have heard several hon. Members describe how interest payments can be avoided by changing debts from one credit card company to another. Cash has also become much less popular. Money-back guarantees on faulty purchases are also attached to credit cards, which make them attractive. Many people have multiple cards. There was only one type in 1971, and now more than 1,300 are available. The companies vie for customers by making the terms and conditions seem more and more attractive.
Store cards often offer 10 per cent. off as an incentive, but the issuing procedures for store cards are especially casual. Some constituents of mine moved house to a new area, and six months later, applied for credit to buy a new car. To their astonishment, they found that their credit rating was not good, even though they did not owe any other money. The people who had moved into my constituents' old house had picked up some junk mail with their names on and used it to apply for a range of store cards, run up debts on all of them and failed to pay. The assessment procedures for those store cards must have been very lax. Stores should be more circumspect when issuing cards, to ensure that they are issuing them to the right people.
Some stores must have had bad experiences. I recently went to buy a small item of furniture and the store staff started to ask me for all sorts of information. I said that I did not want credit, nor did I want the item delivered, because it would fit in my car. However, they still wanted to know my name and address, how old I was and what I had for breakfast! I was not willing to give that information, so they lost a sale. However, that situation might have arisen because the store had had experience of bad customers.
People buy on credit what they cannot afford. They often buy poor-quality goods to minimise the size of the loan. The goods do not last, and often do not outlive the term of the loan. People remain in debt, with nothing to show for it. I often wonder about the frequent television advertisements for sofas with nothing to pay for five years. Anyone with several young children will know what a sofa looks like after five years. People must be in perpetual debt, because at the end of the five years they will need another new sofa.
It is also popular to add the cost of a holiday or a new car to a mortgage. Have now, pay later. But people pay much more when they pay later. I welcome allowing customers the right to challenge unfair lending practices, and improving the regulation of consumer credit businesses through measures to drive out rogue money lenders who charge extortionate rates of interest.
Every now and again, I receive a batch of letters from secondary school pupils in my constituency, arising from their citizenship lessons. In the main, they are full of idealistic notions. Sometimes the pupils want to know what I think, but more often they want to tell me what they think about how the world can be put to rights and how everything can be improved. They have some good ideas—if only money were unlimited—but they obviously have no idea at all about money or the economy, about where money comes from and how it circulates. I endorse the comments of my hon. Friend Mr. O'Brien on the establishment of links between banks and building societies and the teaching of citizenship in schools, so that students can learn that everything has to be paid for, and that everything comes originally from taxation in one form or another.
People need not just to know but to understand the total cost of a loan over the whole repayment period—not simply the purchase price—because it may not be the bargain that they thought. They need to know the cash price, plus interest, plus any default charges. If all that information is available, they can take full responsibility for their decision. They need continuous information on the progress of their loan payments. That is in the best interests not only of the borrower but of the lender. We must not ignore the rights of lenders. They are sometimes the victims of bad payers and have to write off those debts. Such information would prevent debt escalation, increase the likelihood of payment and take into consideration unforeseen circumstances, such as redundancy, illness or accident. Lenders need to distinguish between people who cannot pay and people who will not pay, and to make arrangements for those who want to pay but are in temporary difficulties. They could either increase the term of the loan or reduce the payments.
Debt counselling is a growth industry, as several Members have said. Important as it is, none the less it is shutting the gate after the horse has bolted. As important as debt counselling is budget management advice. If that were available, it would help people to avoid debt in the first place. Such advice should include how to make the best use of a modest income and remain solvent, and how to deal with aggressive doorstep salesmen. I was pleased that the Minister said that that point was under consideration.
Some people respond to newspaper adverts about goods that they think they might want, although the cost is never clear and there is an inquiry tick-box on the advert. An aggressive salesman calls and only the most resistant and robust customer will be able to get that man out of the door without having signed up to buy something, possibly at a cost that far exceeds what they would have paid elsewhere. People need to know how to assess whether a bargain really is a bargain, and how to calculate the full cost as opposed to the cash price.
Prevention is better than cure. Helping people to avoid debt in the first place is much easier than trying to resolve the problem afterwards. The Micawber principle still holds good. Borrowing up to one's repayment limit, with no cushion against the rainy day that always turns up when it is least convenient, is a risky way to live.
Over recent decades, things have changed dramatically. Waiting for something until one has saved up for it is no longer popular. People want things now—today—whether or not they can afford them. Somehow, they think that tomorrow will take care of itself. The result is that personal debt in Britain is increasing by £1 million every four minutes, as my hon. Friend Gregory Barker pointed out. Unfortunately, for many people who are just managing to service their outstanding loans at current interest rates, another rise could just shift them into the unmanageable category, and the downward spiral of defaulting on payments and accelerating debt. I welcome the provision of more information, and information that is easier to understand, for borrowers.
I should like education at school and beyond to go much further, to promote real understanding of how money circulates in the economy between income, taxation, spending, borrowing and saving. For a healthy economy and a stable society, we need a balanced approach to consumer credit that gives lenders and borrowers a fair deal, and I wish the Bill fair weather in Committee.
I, too, welcome this long overdue Bill and compliment the Minister for investing his energy and time in getting it this far. I say to Mr. O'Brien and other hon. Members that the whole House understands the need for action. If I were to make only one jibe, I would say that we do not want to get the Bill swiftly through Parliament because of speculative election deadlines. I am anxious that desperate people who are locked into long-term unsustainable debt should not wait a moment longer for us to take action.
The Bill provides a good framework. It is time to review and bring up to date the Consumer Credit Act 1974 because the markets have moved on. I shall make my next point briefly because there should be a decent discussion about it in Committee and on Report: although the Bill provides a good framework, there could be some tightening up of the nuts and bolts at the corners and the joints. We must ensure that the Bill provides greater protection for consumers who borrow money, not least the 10 per cent. of consumers in Britain who use home credit at some time in their lives—in other words, they pay back their debt through weekly doorstep payments. I want to focus on strengthening protection for low-income borrowers who are at risk from high-cost credit lenders.
We rightly hear much talk about people getting into difficulties with credit cards and the high rates of interest charged by the high street banks, but I want to focus on the 7.9 million people who do not have a bank account or credit card and turn to doorstep lenders and television and newspaper adverts for cash because they have no alternative. Such people in practice end up paying the most to borrow money, which is sometimes used to provide their daily basics. Unjustifiable charging locks the poorest in our society into deep and long-term debt because they are often left with no alternative if they are to survive from week to week.
Experts in the heady world of economics refer to financial shocks, which are unexpected events. Such events in the everyday world could include the arrival of a new baby because of the need for a pram or carry cot and provisions for that child. If a relationship breaks down, people might need to set up a new home and thus buy a bed, sofa, cooker, curtains and carpets. Youngsters changing schools can cause financial shock because they require new gear and clothing to go there.
At first sight, and under such pressure, a person might think that a payment of £4.99 a week is a manageable offer if that is what is in front of them, but the weekly repayments from home loan companies, credit stores and cash converter businesses involve a huge rack-up of compounding annual percentage and penalty charge rates that can hardly be noticed in the small print. The problem is that people can agree to pay back £4.99 over 156 weeks, but with some firms they end up paying back £432.38. People who borrow £100 cash from some companies will be charged £191.76. Another company about which I heard in my surgery lent someone £100, but they had to pay back £220.24, which is a percentage mark up of 440 per cent. The doorstep lending system is locking many of the poorest people into long-term poverty, if not resulting in the repossession of the little property that they have. Yes, such lending is legal, but it usually involves incredibly high interest rates.
I am grateful for the work of Andrew Hutchinson, a campaigning journalist on the Yorkshire Evening Post, who has talked to people about the situation. It is incredibly difficult for people to come forward and spell out their circumstances, not least because to do so can jeopardise their chances of future borrowing. High-cost borrowing is driving people into debt and despair.
I congratulate Church Action on Poverty on its campaign to end doorstep debt. It has spelt out the need for action. I have been asked whether people who borrow from doorstep lenders are incredibly naive, simply trying it on or desperate. My answer is that they are all of those things in different degrees. Some people are trying it on, and lenders should be pressed to check rather better whether people have the capacity to repay, rather than simply saying, "We have a check-free approach; here's the money". However, the usual reason that turns people to the home credit market is desperation.
To protect low-income borrowers from high-cost credit, I am still minded to support those who argue for a ceiling on interest rates and charges, because so often it is the compounding of interest and charges that drives people into long-term, unsustainable debt. It can be compounded with roll-over loans that translate a few hundred pounds into thousands, if not the loss of one's house, as we have seen in some recent high-profile cases.
In the depression years, a cap was introduced. The Moneylenders Act 1927 provided that a rate of more than 48 per cent. was prima facie excessive and the transaction was therefore deemed harsh and unconscionable. In 1974, the Conservatives' Consumer Credit Act dropped that ceiling. I press the Minister and the House to reconsider putting the ceiling back. There are ceilings on interest rates in many other European countries and many states of the United States of America. Like consumer protection groups, I believe that a cap would protect the poorest from excessive credit charges, especially when people have no alternative to high-cost loans.
I welcome the Minister's commitment to review the need for a cap, but if his review comes up with the need for one, how can it be introduced if we have not used this opportunity of legislation to keep open the option of introducing one? Can we not build into the Bill the option of secondary legislation? A statutory instrument could be subject to affirmative resolution so that the House would be consulted and vote on it, but at least we would have the means to introduce a ceiling. That might act as a warning to those who overcharge.
What does the hon. Gentleman say to the counter-argument that a cap on the interest rate might end up increasing the total interest repayable because the term could simply be extended? Should the cap not be on the total amount of interest repayable, rather than on the rate?
I said that I was minded to support a cap on interest rates quite deliberately. I do not take a dogmatic attitude to this. We must look at the arithmetic in detail. Malcolm Bruce made the point that it could all hinge on what we mean by "unfair". That is right. We shall need to clarify in Committee and on Report what "unfair" might mean. If "unfair" is to replace the word "extortionate" in the 1974 Act, everything will hinge on what that means.
Will my hon. Friend the Minister clarify the extent of the powers to control the cost of credit through the licensing system? I want to know whether the add-ons for missing payments, for example, would come under the regulatory powers. To put all that together would cast a different light on my proposition.
The Bill makes a shift from "extortionate" in the 1974 Act to "unfair", but in practice it could mean that everyone has to go to court to sort out what "unfair" is. I cannot believe that that is how the matter should be approached.
Can we not give the financial services ombudsman the power to rule that a credit relationship is unfair so that everyone does not have to go to court? That would bypass the need for individuals to go through that procedure. Why cannot the Financial Ombudsman Service determine questions of unfairness?
Clause 15 shifts the power back in favour of the lender and allows the courts to grant creditors the power to enforce agreements, even when the lender has not provided the information in the first place. That goes against the recommendations of my right hon. Friend Mr. McFall. I would therefore be grateful for an assurance that clause 15 will not let lenders off the hook concerning the provision of information. Similarly, people bypass provisions on cold-calling. They are not allowed to sell money on the doorstep, but they can give people a hamper or a voucher. That is a con and it should be dealt with in the Bill. Angela Watkinson said that there must be a balance between the borrower and the lender. I am not out to close the market down, because people need to borrow money. The key word, however, is "fairness". We must spell out what a fair test is so that it works in practice. I passionately believe that we should not drive more and more people under.
I welcome the framework, but we could tighten the structure slightly. We must make some definitions clearer and make sure that the Bill is soon on the statute book, not least because people enduring unsustainable debts, who pay the highest price of all to borrow money for the basics, should not be forced to live in financial misery a single day longer.
Today presents a valuable and overdue opportunity to reassess the increasing difficulties in the consumer credit industry. I welcome the Minister's consensual and constructive approach, but it is extremely regrettable that the Secretary of State was not here to open our debate. The DTI hardly has a huge legislative burden this Session, and although the Bill is not partisan or contentious, it is important.
As we have heard, the consumer credit environment has changed drastically since the introduction of the Consumer Credit Act 1974. In 1971, there was a single credit card, but since then, spending on plastic has taken off at a staggering pace, gathering speed with the introduction of our flexible friend in 1972 and the subsequent arrival of the debit card in 1987. In the past 30 years, as my hon. Friend Angela Watkinson said, there has been a cultural revolution in the provision and take-up of credit. I do not want to turn the clock back or reminisce about a golden era, but it is vital that a 21st-century environment should have a 21st-century legislative framework to govern it, which is why I welcome the Bill.
The battle to win customers has inevitably resulted in the expansion of a competitive market. Today, more than 39 million Britons have a debit card, and 30 million have credit cards. Adding store charge cards to the equation, we have a staggering 130 million cards of various descriptions in circulation, all contributing to the UK's £180 billion credit card and personal loan industry. The existence of such consumer credit opportunities has made payment significantly easier for many individuals, but we cannot ignore the simple fact that when things go wrong financially credit can quickly become an inflexible financial nightmare. No matter how easy repayments seem and how attractive the advertisements appear, dabbling in the personal loan and credit card industry brings the possibility of severe financial risk and social repercussions.
The situation is perhaps best summarised by Diane Gaston, the head of communications at the National Consumer Council, who warned consumers to beware credit advertising deals that are often not as cheap as they first appear. The obvious temptation and notable attraction of low interest rates and easy access to loans should always be measured against consumers' ability to pay off debts if things go wrong in the long term, either through unemployment or ill health. Some responsibility can be laid at the door of consumers, but banks, building societies and other credit companies should be prepared to lend responsibly and resist bombarding consumers with attractive credit deals that are frequently more complex and economically more difficult than consumers imagine. We have heard vivid descriptions of such cases today.
Such considerations must also be balanced alongside the economic policies of the Government, which have clearly inhibited the ability of consumers to save and the incentive for them to do so. Findings show that the amount of money saved has fallen by nearly half since Labour came to power. The massive fall in the savings ratio has helped fuel the present consumer boom and bolster the economy, but it is storing up real problems for future generations.
Does the hon. Gentleman accept that the savings ratio in this country is strongly geared to the housing market, and that on the two occasions under a Conservative Government when there was a house price boom, the savings ratio fell to levels lower than it is today?
There is a grain of truth in what the hon. Gentleman says, and look what happened. If he is arguing that the result will be a recession and another house price collapse like we saw in the early 1990s, my constituents will take that warning from him. I am staggered that anybody could stand up in the House and praise the collapse of the savings ratio. For anybody who is economically literate, it must be a matter of grave concern that people are spending more and more and saving less and less. Whatever asset price inflation has been, the percentage saved against those assets is declining. The hon. Gentleman and his Government who support that culture are storing up problems for future generations.
As hon. Members in the Chamber may know, for some time Consumer Credit Counselling Services has been lobbying for changes, requesting measures that will allow consumers to enter into credit agreements in a far more informed way than they have done to date. We must not ignore individual responsibility, but we cannot expect everyone who enters into a credit transaction to be an expert on all parts of financial accounting relevant to their agreement. As many of us are aware, financial regulations and credit agreements are often complex transactions requiring much time and effort to be invested in understanding them, to ensure maximum benefit for borrowers.
Of course, consumers must make themselves aware of the issues likely to arise, but we should not expect the average person to be a financial expert capable of understanding the frequently confusing and endless small print at the bottom of documents. We must realise that the worst credit arrangements are often taken up by those least able to understand the small print and those who, with a pressing need for credit, are not in a position to shop around. However, it is important that consumers take some responsibility for their financial decisions, so I support measures that encourage consumers to expand their financial knowledge. Personal responsibility cannot and should not be shirked, but for the most vulnerable and least fortunate their circumstances often mean that financial decisions are very difficult and are made quickly and under enormous pressure.
The issue needs to be addressed by both firms and consumers. I applaud the inclusion of clauses requiring creditors to provide people entering into credit arrangements with appropriate financial information. As other hon. Members have said during the debate, we need to ensure in Committee that the Bill enforces clear, like-for-like comparisons. Firms and consumers have a mutual interest in the consumer credit market working more efficiently, which requires confidence and ability to be developed in all parties. I welcome measures by some private and public sector bodies that have been working consistently towards such objectives. I am further encouraged by attempts to establish a national strategy in the Bill that will place legal obligations on parties to provide access to information, raising financial awareness and competence among consumers and businesses.
What impact will the Bill have on financial service businesses? It is our duty as representatives of our constituents to ensure that we legislate for the industry in a manner that provides sufficient safeguards and protection for consumers, especially the most vulnerable. Simultaneously, however, we must also seek to maintain a delicate equilibrium between adequate consumer support and a strategy that does not overburden business without obvious benefit to the consumer.
I draw hon. Members' attention to a point made by British Chambers of Commerce. Although it has strongly supported moves to limit unfair practices in the consumer credit market, it has warned that businesses should not be subject to over-burdensome legislation that has no positive effect. I am sure that my hon. Friends agree that there is little to be gained by imposing unnecessary regulations on an industry without any benefit to consumers. It is therefore imperative to recognise that although the Consumer Credit Act 1974 has served some consumers well for many years, it has little to do with the new consumer credit realities of today.
The progression of time, the varying needs and demands of consumers and the advancing pace of the credit market require the reconsideration and reassessment of present consumer credit legislation. Such efforts will ensure that we implement the structure best able to offer the necessary and appropriate levels of protection to both companies and, most importantly, consumers.
A similar sentiment is apparent in the data collected by the consumer magazine Which?, which regularly publishes reports relating to consumer issues. Last week, it released a critical report on the consumer credit industry highlighting existing unacceptable practices, which range from high penalty charges issued on late payments to the hard selling of insurance polices, all of which involves targeting vulnerable consumers up and down the country.
Importantly, Which? has also responded favourably to the announcement of plans to reform the existing legislation by asserting, as we have recognised today, that the 1974 Act is
"desperately in need of an overhaul", and that
"transparent information and products will create a truly competitive market".
I shall briefly return to spiralling levels of household debt. Although I have already outlined my support for measures to update legislation that is ill suited to our current credit climate, my support for the Bill is strengthened by my concern about spiralling levels of household debt. Although the Government inherited a history of household debt—as others have said, it took some 600 years to amass—it has doubled in this Labour Government's lifetime to more than £1 trillion.
Several hon. Members have raised, to use the hon. Gentleman's words, "spiralling household debt". In fact, because interest rates are at their lowest level for the past 30 years, the proportion of household income that people spend on debt has fallen over the past four years, so they have been able to pay those bills.
The hon. Gentleman makes an interesting point, but he knows that a low rise in interest rates would have a disproportionately high effect on household budgets. If interest rates had increased by 2 per cent. 10 or 12 years ago, that increase would have been easily accommodated in household budgets. If interest rates were to rise by 2 per cent. now, however, it would have a huge effect on household budgets, because people budget for very low interest rates. A small movement in interest rates could have a devastating effect, which we would all see in our surgeries. There is no way to escape the fact that spiralling household debt in the UK is a worrying issue.
In one of its reports, Grant Thornton states:
"Consumer debt is at a historical high, having broken the trillion pound mark, and now amounts to more than the whole external debt of Africa and South America combined . . . Contributing to this still-growing debt mountain is the fact that UK consumers now have a heady total of more than 66 million credit cards at their fingertips—a worrying five times more than the European average".
It is not feasible for Labour Members to pretend that there is not a problem.
Is the hon. Gentleman honest enough to admit that his prescription means that if the Conservative party were ever to gain power, it would freeze all new mortgages and no one would be able to borrow money to buy a house?
I am afraid that that is a frivolous intervention. The Bill has nothing to do with the Conservatives—it is a Government Bill that we are supporting and trying to improve. Making frivolous points like that does not advance the argument very far.
US credit consumers receive notably better protection than their British counterparts. On the other side of the Atlantic, consumers have the Truth in Lending Act, the Equal Credit Opportunity Act and the protection of the Unfair Debt Collection Act, ensuring that the consumer credit playing field is significantly fairer to all participants. The Fair Credit Billing Act has also done much to enable errors associated with credit arrangements to be investigated and swiftly put right.
Examining the relationship from the perspective of the lender in the USA, there is a clearly defined duty requiring lenders to "know their customer" by recognising the consumer's credit needs and requirements and matching them with appropriate credit services. I was struck by the moving story told by Mr. McFall. Had the lending institution that he mentioned known its customers, one would hope that it would not have provided credit in a way that produced such a great deal of misery for his constituents.
Some US states have progressed even further, demanding that legal action be taken against credit card companies who have, through irresponsible methods of lending, trapped customers into a spiral of escalating debt. While America has responded to match an evolving credit landscape with improvements and developments in legislation, the British consumer has been left with the Consumer Credit Act 1974—legislation that simply does not reflect the debt reality of Britain today.
Such concerns about the problem of indebtedness were recently acknowledged by the Bank of England in its financial stability review. It notes in its studies of the potential long-term financial outlook for this nation the risks that personal debt may pose to the macro-economic stability of this nation, and urges that the seriousness of that statistic be appreciated. Although I am cautious about how far the Bill will be able to resolve many of the issues of personal indebtedness, I remain supportive of the steps that it will take in moving towards making that a more realistic possibility.
I have been lobbied—as, I am sure, have many hon. Members—by several interest groups and people in my constituency. I was particularly struck by the e-mail that I received from Mr. Ian Clark on behalf of the diocese of Chichester, which covers Sussex and includes my constituency. He says:
"On behalf of the Diocese of Chichester, the church applauds the improvements that the Bill proposes to the regulation of consumer credit in this country—the current legislation is over 30 years old and clearly in need of significant improvement."
He points out:
"The UK has the highest levels of consumer debt in Europe—relative to incomes it is higher even than the well-known debt problems in the USA. Our churches have to deal on a daily basis with the results of crippling debt".
He remarks that MPs too will regularly see in our surgeries the problems that it throws up, and continues:
"The results are not just personal financial ruin, but health and psychological problems, homelessness and family breakdown.
My churches believe that the Bill needs to be strengthened even further in a few key areas to more adequately protect low-income borrowers from high-cost credit and predatory practices. They note that the consumer credit industry has been investigated by the OFT and recently referred to the Competition Commission. They also note that the Consumers' Association's recent Which? report highlighted many of the unfair practices" in its report, "Sneaky Tricks and Hidden Charges".
Mr. Clark made a particular request that we consider certain amendments in Committee, the first of which is:
"To give the power for the Government to introduce maximum levels of interest and charges if this proves necessary in future—at the moment many poor debtors suffer scandalously high marginal APR percentages and unreasonable . . . charges".
Several Labour Members expressed interest in that today, and it will bear consideration in Committee. Such an important issue needs to be addressed in primary legislation.
The next proposed amendment is:
"To introduce an affordability test that will reduce irresponsible lending by some . . . finance companies—see Clause 19."
The next amendment reads:
"To improve the OFT's regulatory licensing powers over lenders and intermediaries—see clause 38, including fines that are reasonable in light of the severity of offence—similar to the FSA model, not limited to £50,000".
I share that concern and we shall test that matter, too, in Committee.
Another suggested amendment proposes that clause 15 should require lenders to provide better and more prominent information to borrowers in line with the recommendation of the Treasury Committee. The clause does not currently require lenders to provide comprehensive and clear information.The diocese also suggests that the use of time orders by the courts should be encouraged through clarifying sections 129, 130 and 136 of the 1974 Act.
We cannot escape the fact that legislation is needed to keep pace with developments in the consumer credit industry. We need to do more to protect the most vulnerable in society from aggressively marketed and unscrupulous lenders. The picture of spiralling household debt that I have described appears throughout the nation, affecting all regions and reflected in the entire spectrum of society. The problems associated with consumer credit have created an untenable financial position that requires urgent attention. Legislation must meet the realities of the consumer credit market.
The Bill is welcome but far from perfect and requires proper scrutiny and improvement in Committee. However, I support the provisions that are aimed at creating a more favourable balance for the consumer, establishing a competitive environment, removing rogue traders while inspiring consumer confidence in the credit market and ensuring a more promising credit landscape in the future.
I welcome the Bill, which must be viewed in the wider context of "Promoting Financial Inclusion", which the Treasury published as part of the pre-Budget report, and the strategy on over-indebtedness. Both documents emphasised the role that credit unions can play. However, it is high time for a review. I accept and welcome the fact that we have a vibrant credit industry but there are casualties to whom we must give attention.
First, I welcome the information provisions. Parts of the industry, such as the Finance and Leasing Association, have criticised, for example, the warnings, the notice of arrears and the notice and information provisions on default. However, I believe that they constitute a proportionate response.
Secondly, I welcome the changes in the licensing provisions. From the publication of the first edition of Cranston's "Consumers and the Law" in 1979, I have criticised those provisions on the basis that they were the nuclear option. One had to withdraw the licence, which was not a practical step. The Bill contains a graduated response in the detailed restrictions that can be imposed and the civil penalties. However, I accept that the civil penalty of £50,000 should be alterable by statutory instrument.
The licensing provisions are important in the context of shark lending. The citizens advice bureau in Dudley has given me a list of the intimidating behaviour of some rogue lenders that includes bullying, telephoning debtors at work and at relatives' houses, telephoning at all hours of the day and night, claiming that goods can be repossessed when they cannot because the debtor has made payments beyond the limit that the legislation prescribes, and saying that clients are liable for the debts of others such as close relations.
However, the problem is not confined to what I have just described. As my right hon. Friend Mr. McFall pointed out, the big banks also have a responsibility. Let me give one example from my constituency. A bank lent a 71-year-old lady, who is on pension credit, £1,700. Her monthly income is just under £490 and she has to pay £418 a month. The result is penury.
Much depends on enforcement. Tomorrow, I shall visit the west midlands anti-loan shark pilot, which the Department of Trade and Industry set up. I commend that initiative. I have already been in correspondence with Tony Quigley and his team. They have identified one lender in the west midlands region that charges an annual percentage rate of between 8,000 and 10,000 per cent., with hundreds of clients. The team has already done good work in getting what are in effect injunctions against some lenders. They say that their hand would be strengthened if they had a power of arrest for illegal moneylending on the basis that if the perpetrators were arrested, clients and victims would come forward.
Thirdly, I want to deal with the unfairness provisions. Mr. O'Brien made a good point when he said that we need more definition by the time the Bill reaches Committee. The old moneylending provision involving the presumptive 48 per cent. unfair interest rate is no longer appropriate. Unfairness itself is not an objectionable test; it operates in the context of the Unfair Terms in Consumer Contracts Regulations 1999. The regulations, however, contain a grey list that identifies what might be unfair. There is a good argument for saying that unfairness should be specified to a greater extent; otherwise, as my right hon. Friend Mr. Battle said, every district judge in the country could come up with a different decision, resulting in cases going up to the Court of Appeal. The Government should specify the criteria in that respect.
I take the point in the briefing from Citizens Advice that the restriction of the application of this provision where judgment has been secured is objectionable. The reason is quite simple. Many such judgments are reached by default; the consumer has had no say in the matter and the judgments are simply rubber-stamped. There needs to be a mechanism whereby those judgments can be challenged.
I very much welcome the use of the financial ombudsman; this is a real example of alternative dispute resolution. There are other provisions in the Bill which I also welcome. There are also omissions, as some of my hon. Friends have pointed out. One point that has not been mentioned is the section 75 issue, which involves the question whether consumer credit payments abroad are covered. The academic view has always been that they are, but a High Court judge said in a recent decision that they are not. This is a good opportunity to clarify that matter.
Commentators such as Professor Sir Roy Goode have pointed out a number of defects in the current legislation. They are technical defects, and I think that I had better write to my hon. Friend the Minister about them.
In summary, this is a good Bill, and I very much hope that, with the beneficial tinkering that I have talked about, it will be an even better one.
We should all agree, in a debate in which we are making considerable criticisms of the lending industry, that responsible lending is important to all our constituents in helping them to navigate the financial pressures that we all face at various times in our lives. It is ridiculously easy, however, for our constituents to borrow wholly irresponsibly at a time when debt has spiralled and savings have plummeted. Total personal debt in the UK now stands at £1 trillion. I am not a mathematician, but it might be helpful to the mathematically unfamiliar if I say that a trillion is a 1 with 12 noughts after it. Unsecured personal debt has doubled since 1997. The director of policy advice at Citizens Advice reported on
I would like to give credit to the two citizens advice bureaux in my constituency, and to praise the excellent work that they do in Dunstable and Leighton Buzzard. I am grateful for the funding that they receive from South Bedfordshire district council, which in some cases helps them to employ additional financial advisers. I am also delighted that a credit union is about to be set up in the Downside area of Dunstable. I would like to see more credit unions in operation because they have an excellent record of operating in many areas of our constituencies that other financial institutions do not reach.
Will the hon. Gentleman rejoice with me at the item in this week's Co-operative News which records that the 500th member of the south-west Durham credit union is one Anthony Blair? Does not this demonstrate that credit unions appeal to all sections of society, not just the less well-off or the left of centre?
The hon. Gentleman is absolutely right. I believe that the President of the United States of America is also a member of a credit union. I intend to join the credit union set up recently in my constituency. He is right—they are for everyone, and more power to their elbow. They are excellent institutions.
We have heard horrendous stories of suicides, which have hit the papers, of people who have got into untenable debt and have seen no way out. I am struck, however, by the fact that in 70 per cent. of marriage breakdowns, financial problems are cited as one of the principal reasons. We should all be conscious of that. It is excellent that both Relate and community family trusts, which do excellent preventive work in terms of relationship support, are providing money advice to couples. Obviously, in all cases, prevention is better than cure.
I was interested to hear that one of the Acts in the United States of America is called Truth in Lending, as that should sum up what the Consumer Credit Bill is about—honesty, transparency, people knowing what they are getting themselves into and not having nasty shocks and surprises, and the industry acting sensibly and responsibly at all times. Above all, that means people knowing the interest rates that they will pay before they take out a loan, how long they will pay the loan for, and having that data well in advance.
Clearly, data sharing is important. Companies that lend need to know what other loans people have. It is ridiculous that at the moment, if people shop around a number of different credit lending companies to get the best value loan, and then they do not take up the offer, that can cause their credit rating to deteriorate, and they are regarded as a worse credit risk purely for acting sensibly and trying to shop around for the best possible loan. Penalising someone who has tried to act responsibly is completely the wrong result, and I hope that practice is stopped.
It is imperative that the lending industry operates under the general proviso of really knowing its customers. That is what it is all about. I want clause 15 to bring about a situation in which, if a lender knowingly lends irresponsibly, that loan will not be enforceable in the courts. It is a little disappointing that we are uncertain about that at the moment. We will have to see how the courts pronounce on such cases, as it is an important principle. If we can establish that knowingly irresponsible lending will not be enforceable, that, probably above all else, will stop the lending industry acting in such a manner.
There need to be clearer "wealth warnings" to people who are about to take out loans. For example, in relation to those advertisements that say, "Consolidate all your debts, roll them all up into one loan and you will be better off," a lot of people do not realise that they are moving from unsecured loans to secured loans, so their home could be in danger. There have been instances of people losing their home through not realising that, which is very regrettable and should not happen.
Payment protection insurance is a scam and a racket. Under the terms on which it is provided by many credit lenders, it is extremely bad value for money, and can very often be provided considerably more cheaply elsewhere. People who borrow should be able to cancel payment protection insurance separately, and it should not be a condition that it is wound up with their loan. People should be offered proper value for money.
It is appalling that someone with a £10,000 loan should be twice as likely to have his or her credit limit increased automatically, as if the full amount owed were paid each month. The credit card companies like people who manage to make only the minimum repayments and they like people with large debts, because they know they will make more money out of those people. The industry will have to do something about the irresponsible increasing of credit limits.
As I said earlier in an intervention, there should be much clearer warnings about credit card cheques, which attract an interest charge the moment they are received by the credit card companies. That is not made clear in the literature. It should be highlighted in large print in statements when they are sent out.
I am sure we all agree that prevention is better than cure. Mention has been made today of proper financial education. I welcome the work done by citizens advice bureaux and schools, but I think that money education should be tied closely to significant life events that affect people's finances—losing one's job, for instance, or wanting to send one's child to university, which has become considerably more expensive under this Government. Other examples are a relationship break-up, the birth of a child and even a change of school, as was mentioned earlier.
I think it would be best for financial information to be provided at the time of such major events in a clear, simple form. It could be provided in a number of places: clear, simple leaflets could be provided in surgeries, hospitals, jobcentres and libraries. I cannot envisage people queuing for a course on financial literacy on a wet Saturday afternoon, but I can envisage them picking up a small, sensible, easy-to-understand leaflet while they wait to see a doctor, at a jobcentre or at the local library. Such advice must be independent, so that our constituents can trust it.
I realise that a number of others wish to speak, so I will end my speech.
I, too, am conscious of the number of Members who wish to speak, so I will confine myself to just a few remarks. Like all who have spoken I welcome the Bill, and I echo the tributes paid to organisations such as the citizens advice bureaux, not just for the work that they do in my constituency and many others but for the effective way in which they, and Citizens Advice Scotland, have lobbied for the legislation and helped to create consensus.
First, I want to comment on the unfairness test which replaces the extortionate credit test. I agreed with what was said by my hon. and learned Friend Ross Cranston and Malcolm Bruce about the need for a more specific definition of the unfairness test. However, I was struck by the comment of Citizens Advice in its briefing that one of the benefits of the proposal is that there is no attempt to define "unfair" in a way that would restrict its ordinary popular sense. If any attempt is made to define the test in Committee, it should not lead to any reduction in the benefits that it could bring.
It is in the nature of the credit industry that as one door is shut another is opened, and a new wheeze is dreamt up. Credit card cheques are an example. I do not think that they existed 10 years ago, and I find it hard to believe that they serve any social purpose. Too precise a definition might prevent us from changing our responses in accordance with the changing practices of lenders; that will be an important point to pursue in Committee.
I will be interested to hear from the Minister, if he has time, about the thinking behind the Government's decision not to include in the Bill details about the unfairness criteria. I hope that he can at least confirm today that the new unfairness test will be very broad. He has already said that the threshold will be lower than that for the extortionate credit test, and I certainly hope that the unfairness test will include considerations such as the content of advertising, the way in which, and the type of people at whom, credit is marketed, and the circumstances in which credit is advertised and marketed. The test will of course also have to take into account the individual circumstances of a particular borrower. What might be unfair for one borrower might not be so for another, given their particular experience or capacity in the financial sector.
I shall also briefly refer to time orders and their applicability to Scotland; indeed, this is an important issue for the UK as a whole. The general view is that the time order provision has not been used as much as it could have been, even in England, but there certainly is a particular problem in Scotland. Although this is a reserved matter, it has implications for the way in which the courts—and, in due course, alternative dispute resolution—will operate in Scotland, so it is an important issue to sort out.
I am surprised that the Bill does not make it clear that lay representation will be available in the Scottish courts for those who wish to act on behalf of people seeking time orders. In the initial consultation paper on tackling loan sharks, which was published some three years ago, the Government said that they
"proposed to amend the Act"— the Consumer Credit Act 1974—
"to make it clear that lay representation should be allowed when applications for Time Orders are made".
The summary of responses to that document pointed out that
"respondents overwhelmingly favoured allowing lay representation" in Scotland. I am not sure why this aspect of the provisions affecting Scotland got lost somewhere en route. I hope that it was not because someone decided that things were getting awfully complex, and that we should perhaps leave it out at this stage, rather than getting caught up between the levels of Scottish and UK government.
This is an important issue that needs to be addressed, particularly in Scotland. I doubt whether a Sewel motion is required, but in case one is, I should point out that one of the beauties of devolution and of having a unicameral Scottish Parliament is that measures can be put through very quickly. I am sure that Westminster and Scotland between them could get a Sewel motion through in the next couple of weeks, given the broad support among all the parties for this important measure.
I want to say something about the limit on the penalty that can be imposed on credit businesses that breach the Office of Fair Trading requirements. I agree that the £50,000 limit is much too low. Some of the organisations whose activities need to be stamped out are not mere back-street lenders; they are big organisations, for which £50,000 is nothing. There is no reason, therefore, for having a limit on the civil penalty that can be imposed. If I have read the proposals correctly—I might not have done so—the penalty can be imposed only if a requirement imposed by the OFT is broken. However, where a particular activity of a credit business is deemed to be unfair and has affected hundreds or thousands of consumers, but it then stops that activity, it will be impossible to impose a civil penalty. The OFT's power to impose a penalty will be restricted in a way that, broadly speaking, that of the Financial Services Authority is not. This issue needs to be looked at.
Finally, I hope that this debate sends out a clear message to our financial services industry. There has been great pressure for such legislation because in selling credit, too many lenders, including some of the biggest names in the industry, have engaged in practices that were frankly outrageous. I shall not go into them today, but we know of the examples to which many Members have referred. However, I am pleased to say that many people in the financial services industry have cleaned up their act and made a clear commitment to improve the way in which they sell their products.
What we need is not just legislation but a change in attitude, so that whenever a new product is dreamed up or new financial wheezes are brought from the drawing boards, the first consideration should not be how to make the maximum profit. That, of course, is part of the industry, and I want to see a successful financial services industry because thousands of jobs in my constituency depend on it. At the same time as thinking about the profits to be made, however, the financial services industry should also consider whether it is being fair to the consumer and the borrower. That is the sort of thinking that should apply when new products are being put on the market, and it is one reason why I am attracted to a broad definition of the unfairness test. If people thought that they could be caught by a broadening of that test, there would be less chance of a bad product going on the market in the first place. Overall, this is a good Bill in every sense, and I pay tribute to the constructive way in which it has been introduced to Parliament.
On behalf of the Scottish National party and Plaid Cymru, I broadly welcome the Bill and we will support it. We believe that the new definition of unfairness is a major step forward that will start to attack the problem of excessive credit charges. However, in an earlier intervention on the Minister, I expressed some concerns about whether it would attack the root of the problem—the fact that only a few cases ever came to court. I accept that under the new definition that may change, and I welcome dispute resolution, despite the fact that I used to earn my crust as a lawyer. In these particular circumstances, such resolution could prove very useful, but I still feel that many people who are suffering under such agreements will never come forward, whatever the test.
Following the Meadows case I, with other Members, met representatives of the Office of Fair Trading to discuss the powers available to it. It appears that although the courts may find an agreement to be excessive, under the present law there are no powers to examine other agreements granted by a company. I appreciate that there is the matter of resources, and that this may be difficult, but will the Minister consider whether the intermediate sanction given to the OFT could include the power to order a company at least to alert other lenders to the judgment against it, and to investigate the terms of similar loans to establish whether they could be dealt with, without people having to go through the suffering of bringing a court case in the future?
In the Meadows case, the loan was granted by a company different from the one that finally became the defendant in the action. The loan had been sold on, which is not unusual in the financial services world. What concerned me when I spoke to the OFT was that it appeared that even when a company's licence was suspended or revoked, there was nothing to prevent it from simply selling on the loan book to another company, with the loans continuing under the same terms and conditions. Although a company had been struck off for excessive charges or other actions, its loans were not subsequently checked. That is wrong. There should be some procedure for alerting people to that problem. If a company has granted one loan, it is likely to have granted many others in similar circumstances. Will the Minister consider granting the OFT that power?
The most glaring omission from the Bill is the absence of any attempt to introduce rate capping, and it was interesting to hear some of the debate on that. We accept that debt incurred on the doorstep has been a pressing matter. Even if a power is not introduced at this stage, there is the possibility of introducing it through secondary legislation, should that be proved necessary by the review undertaken by the Department of Trade and Industry. We believe that it is necessary to tackle the problem.
Enough has been said this afternoon about the extent of the debt problem, and I shall not rehearse that. Suffice it to say that Citizens Advice Scotland, in its "On the Cards" report, shows that there has been a 64 per cent. increase in the average debt since 2001, and it now stands at more than £13,000. I noted that the BBC said this morning that calls to the consumer credit helpline had increased by 71 per cent. in the last year or so. That represents a tremendous increase in the amount of indebtedness in society, and shows just how deeply ingrained the problem is.
According to "debt on our doorstep", more than 3 million people on very low incomes have to borrow money at interest rates of between 150 and 200 per cent. We have heard examples today far above those rates. Even store cards from reputable stores charge interest rates of around 30 per cent.
Much has been said about financial literacy, but one of the problems is that people do not understand APR, AER and many of the other acronyms presented to them. How many people read the detail of an agreement before signing it? Very few, I suspect. In the days when interest rates were rising sharply towards a 15 per cent. base rate, many lenders simply extended the terms of loans and sold them on the basis of the monthly repayment rather than the APR. Many of our fellow citizens did not understand that practice.
A statutory cap is not a new idea, or indeed a particularly radical one. It existed in the UK before the 1974 Act and still exists in many European countries and in several US states. I appreciate that a cap does not appear in the Bill, but is under review. I strongly urge that the review be carried out swiftly. If the financial services industry does not get its act together as a result of the Bill the cap will be necessary, and should be introduced quickly. We only have to look at the never ending stream of credit offers coming through our letterboxes to see just how many companies want credit business, and I do not think that a cap would slow that down.
The exact terms of clauses 12 and 13 do give us some concern. Clearly, we welcome the main thrust of the clauses and the provisions relating to default notices. Two points arise, however. The level of the default sum is not stated in the Bill, and it will be of little use if it is set too high. It has been suggested in lobbying that it could be £50, yet many of the default sums are currently set at between £20 and £25, so would not be covered by the clauses. Perhaps the Minister could share with us his thinking on the amount.
The second problem is that there is no provision as to the frequency with which charges may be imposed under the ceiling. For example, if the ceiling were £50, a succession of smaller charges under that figure could be imposed without restraint. The consumer would not have the benefit of being able to pay off a loan without incurring interest charges.
I am conscious of the time constraints in the debate so I shall end with one point on the issue raised by Mr. Lazarowicz about time orders. I agree with him about the necessity to bring Scotland into line with the rest of the UK. From my previous experience I know that time orders can be very useful. In Scotland lay representation was originally allowed with such orders, but a problem arose because provision for that did not appear in the original legislation—the Debtors (Scotland) Act 1897. Following representations, it was decided that it breached the Scottish rules of court.
A similar problem would arise from simply amending the Bill. The rules of court needed amending with regard to the representation on which Citizens Advice Scotland has lobbied. Under the present rules, anyone seeking a time order has to pay to have the order served on the defendant, but under the English system, they do not have to pay. Because of the rules of court in Scotland, the sheriff clerk cannot serve it on behalf of the applicant free of charge.
My party and I believe that both those matters must be dealt with quickly. I am not convinced that that can be done merely through an amendment to the Bill; a Sewel motion may be necessary. However, I have spoken to my colleagues in Edinburgh, and as we are keen for the matter to be dealt with, we will co-operate in any way necessary to bring it forward, to ensure that people in Scotland who want to benefit from a time order can do so fully.
Owing to the lateness of the hour, I shall not take up much of the House's time.
I welcome the Bill and the introduction of the unfairness test rather than the use of the word "extortionate". The test is helpful and will be preferable to an interest rate ceiling. As we know, interest rates do not reflect the cost of loans; there are a number of other factors, so the provision offers a good initial way of looking at the matter. However, we need a fail-safe to enable us speedily to improve the system by statutory instrument if the need arises. The matter need not take the proportions suggested by Conservative Front Benchers. I understand their points but, despite having the best of intentions, they are wrong on this issue. There should be provision for the introduction of a statutory instrument. The length of time that we have had to wait for the Bill means that we probably cannot afford to wait too long for changes that are more in the nature of fine tuning than fine principle.
We should look carefully at the fines ceiling of £50,000, which is far too low. As several Members have pointed out, the type of businesses we are talking about are not hole-in-the-wall operations; for many of them, £50,000 would be nothing. It should be possible to adopt a more pragmatic form of words to enable us to alter the provisions if the case for doing so can be shown.
Before Christmas, many of us were afraid that the Bill would not come before the House. The apparent sketchiness of some of its provisions may be attributable to the speed with which my hon. Friend the Minister was able to persuade others to get it into the pipeline. I imagine that there will be an incredible number of amendments in Committee to stiffen some provisions and to give others clearer definition. Draftspeople are probably working on them even as we speak.
As the Chairman of a Select Committee, I am, sadly, normally excused from participating in Standing Committees—actually, I do not really want to. In 1983, a group of us were dealing with the Mental Health Bill and had been working on it for several months. It was the first such Bill since 1959 and in the run-up to the 1983 general election, we eventually got through a compromise. More than 20 years later, another Mental Health Bill is being considered. I want to point out to my hon. Friend that legislation of that nature does not happen quickly, which is all the more reason for a pragmatic, open-ended approach to some of the provisions that several of us have identified as controversial.
I am not normally relaxed about, or praising of, the Scottish nationalists, but the last statement in the speech of Mr. Weir was encouraging. It is important to deal with time orders as expeditiously and as felicitously as possible. If we can have agreement in both Edinburgh and London that that is necessary and desirable, with a good wind we can get those provisions through, too. That will greatly enhance for the whole United Kingdom what promises to be an extremely effective and encouraging piece of legislation. It will make the lives of many of our people much easier. Those people may be vulnerable, stupid, indolent—we could apply any number of adjectives—but, more than anything else, they look to Parliament for help and assistance. The Bill, and my hon. Friend the Minister's encouraging remarks, give us the chance to do something about that. I welcome the measure.
I wish to ask my hon. Friend the Minister several questions, which I am sure he will answer at an early stage of the Bill's progress, if not today.
It is salutary to remember that during the two weeks in which the United Nations put together a record £2 billion for south-east Asia, World Bank profits over that period exceeded that amount. Does the Minister agree that, given that bank profits remain at record levels, if banks are not prepared to regulate themselves properly so that they are fair to consumers, it is appropriate for politicians to regulate them? However unwelcome such regulation might be in principle, it is being forced upon us.
Over the past year, I have dealt with three cases that are relevant to the Bill. The Minister is aware of the Lewis case, which ended in tragic circumstances. It is a tribute to Mrs. Lewis that she has represented well the interests of all families who live with the consequences of debt. I also dealt with a family who were about to lose their house because of mortgage debts, and with a woman who had never worked, yet had £14,000 of debt, all of which was due to credit given by the big banks. Is it appropriate that it should be left to my negotiating skills—however good or bad—to resolve such problems? Should not a systematic approach be provided by the banks, or put in statute, to resolve them, rather than relying on people such as me—in essence, the voluntary sector?
Should we not legislate to deal with the credit card cheques that the banks issue? The Co-operative Bank has specific links with the Labour movement, yet I recently received four credit cheques from it. Does the Minister agree that it is unethical for the so-called ethical Labour movement bank to issue credit cheques? Will he join me in calling on the Co-operative Bank to take a lead among all banks by refusing to issue such credit cheques to anyone in future?
Does the Minister believe that the banks should use a debt-to-income ratio for credit applications, similar to that used for mortgage applications? Does he agree that in addition to annual credit statements from credit suppliers, people should receive a consolidated credit statement similar to that available to consumers in the United States? Does he share my regret that when the banks discussed a voluntary system of sharing information within the Association for Payment Clearing Services, one of this country's major banks was not prepared to agree with the others that credit requires self-regulation?
I welcome the Bill and the secondary legislation that the Government introduced towards the end of last year. Taking them as a package, I am pleased by the Department's response to the points that we on the Treasury Committee emphasised following our investigative work over the past couple of years, which was thoroughly covered in the speech made by my right hon. Friend Mr. McFall, the Committee Chairman.
During our investigation, we found a worryingly long list of the industry's failings. They fell into three categories, the first of which was failures of transparency. Illustrations of that included unreadable contract information—literally unreadable in some cases; too much misleading promotional material; and incalculable APRs. I am pleased that some of those issues have been picked up in the secondary legislation that has already been discussed elsewhere in Parliament.
The second category involved questions about the industry's real competitiveness. One of the most glaring examples that we found was store cards. Virtually a cartel operates, and we are still looking at interest rates of about 30 per cent. In some cases, the rates have not been revisited or reduced since 1999. I am pleased that, partly as a result of the issues that the Select Committee teased out in the inquiry, the Competition Commission is looking at the store card industry. I hope that its review will have some consequences for how the industry conducts itself.
The third category involves unfair trading practices. I come back to the unsolicited issuing of credit card cheques. There is one glaring omission in the Bill: it contains nothing that will help us deal with those cheques, which are sent to 16 per cent. of UK households. Virtually every issue is unsolicited, and evidence shows that they are sent to a greater than average proportion of cardholders who are already experiencing some form of financial difficulties. The Treasury Committee concluded from our investigations that in many instances the cheques are sent out irresponsibly by some lenders.
Last year's Government White Paper appeared to agree with us. At paragraph 5.62, it cites as an example of irresponsible lending
"unsolicited issuing of cheques that can be used to draw on credit card accounts".
I hoped that, as that example was flagged up in the White Paper, we would see some follow-through in the Bill. I hope that there will be time in Committee to consider amendments to cover that.
Credit card cheques are simply not necessary. They did not exist a few years ago and they are a wretched development in the expansion of consumer credit. Unlike credit cards, they offer no interest-free period. Interest starts as soon as the cheque is used. The rate of interest can be double that for the credit card to which they are nominally attached. There is a handling fee of 2 per cent., which does not apply to the credit card. There is less consumer protection for the transaction than if it had been made by credit card. Such transactions are far less secure against fraud than those made by credit card, yet in virtually all cases in which they are used, the consumer could have made the purchase using the credit card itself.
We have to ask what the real purpose of credit card cheques is and why the industry continues to promote them. The Treasury Committee asked for a number of measures to deal with them. We asked for clearer information on terms and conditions, statements on the cheques about applicable APRs and notice that interest was payable immediately. We asked that companies make it clear to users that they have less protection if they use credit card cheques than they have under any other aspect of consumer protection legislation, and that credit checking be carried out before they are issued.
I take the view that the existence of credit card cheques is indefensible. I accept that it may be difficult to go straight to banning the practice. When we had the chief executives before the Select Committee, I asked them to justify the unsolicited issuing of credit card cheques and I found that they could not. Although their explanations were possible defences for the existence of credit card cheques, none of them had a defence for the unsolicited issuing of them. The truth is that they are a purely cynical, opportunistic marketing opportunity—an enticement to users to use up their credit limit. One has only to look at the glossy promotional material that comes with the cheques to find confirmation of that. The literature says, "Use this for a gift, for a treat, for a holiday, to pay the school fees, to pay a utility bill or even the council tax bill." To suggest to consumers that they should undertake expenditure of that nature using the most expensive form of credit available is irresponsible.
It seems to me that the industry hopes that the cheques will flop on to the doormat on the same day as a glossy holiday brochure—that the consumer will put two and two together and end up paying six for it. I am not convinced that there is a case for those cheques, and they should certainly not be sent unsolicited. They are not part of the fair relationship that the Bill seeks to achieve. They do not help to achieve affordability, because they are the most expensive form of credit. They are not responsible lending. The industry says that when it introduces its revised code in March it will deal with some of these matters and offer consumers the right to opt out, but that does not come close to achieving what needs to be done. We must go much further, and we should require an opt-in. Cheques should be issued to consumers only if they actively request them.
The Bill provides an opportunity to end the unsolicited issuing of such cheques. It is a good Bill, but it is incomplete. If we could add such a provision, it would be much better.
The Bill has been a long time coming but, nevertheless, it is welcome and it has been worth the wait. It is to the Government's credit that it commands a consensus, and it has been introduced following a tremendous amount of consultation with various parts of the industry.
As a Caerphilly MP, I welcome the Bill. Soon after I was elected in 2001, I had a meeting with the manager of the Bargoed citizens advice bureau. I asked him what was the issue of greatest concern to him and the town of Bargoed. He said that without question it was the issue of indebtedness. At the end of 2001, I read the results of the greater Gwent survey on indebtedness, which made the stark statement that there was a direct correlation between areas of deprivation and credit use. It cited Blaenau Gwent, the poorest region in the county—indeed, it is one of the poorest in the whole country—as having the worst levels of indebtedness. Monmouthshire, one of the most affluent areas, had a comparatively good record. It showed, too, that in the previous two years, in the borough of Caerphilly, part of which I represent, 7 per cent. of the population had been contacted by money lenders, many of whom were unregistered. Up to 57 per cent. of people who had taken out loans had experienced personal difficulties with those money lenders. That graphically depicts the scale of the problem.
A constituent came to my surgery a couple of years ago. Not unusually, she had taken out a loan of £20,000 and had signed a contract agreeing to an interest rate of 1.97 per cent. a month. That does not seem very much, but the annualised rate was 22 per cent. She discovered before long that she was paying £70,000 on a £20,000 loan, and found herself in court facing a debt of £100,000, a sum that she could never hope to repay. Similarly, a single parent who found herself in financial difficulty was approached in her local club by a supposedly friendly gentleman who offered her a helpful loan of £200. He said that there were no strings attached, but a few weeks later he knocked on her door asking for the £200 with an extra £200 in interest. That is a clear example of the problems that we are up against.
Sometimes, those problems can be resolved by people working together and by the police. However, I took the initiative on the issue of indebtedness with the local newspaper, the Rhymney Valley Express, and we ran a joint campaign against the loan sharks. We sought to highlight the issue and raise awareness, and we stressed the viable alternative of credit unions. The campaign also argued forcefully for changes in the law. That is why I am pleased with the legislative proposals before us.
As many hon. Members have said, the Bill has innumerable good features. Central is the proposition that we should introduce a concept of fairness to replace the concept of extortionate credit. I welcome that provision in clause 19, but there is room for clarification. I strongly recommend that the proposals from the National Association of Citizens Advice Bureaux be considered carefully by the Government and in Committee.
NACAB has produced an excellent briefing on various aspects of the Bill. There is much to commend those proposals. While the Bill may not be as strong as many of us would have wanted, it is undoubtedly a huge step forward. I urge hon. Members in all parts of the House to support it this evening, and I hope it gets on to the statute book as quickly as humanly possible.
It is a pleasure to wind up the debate for the official Opposition. It has been a good natured and well informed debate, and I shall deal in a moment with some of the contributions.
I, too, regret the absence of the Secretary of State, but I pay tribute to the Minister for the way he has put his case and drawn up the Bill. I thank him for his courtesy in inviting me to his office a few weeks ago to discuss the Bill. Perhaps I am not supposed to say that. I am sorry, but I appreciated the invitation. That does not mean that we will agree on everything, but when we do not oppose the Bill, working behind the scenes like that is beneficial to those whom we are trying to help.
We heard from all parts of the House about indebtedness. We heard that debt has increased considerably in the past few years. We also heard that incomes and household assets have increased—that is true, but it misses the point. In individual cases there can still be a problem, and in some cases a desperate problem. To say that income or assets have increased in general is to ignore the deeper point. I am pleased that the deeper point has not been ignored by many hon. Members who spoke today. They recognised that debt can be a huge problem.
I remember my grandfather telling me, "If you're in debt, you're in danger." That is true and it is a maxim that I have tried to stick to all my life. There are times when it may be desirable to borrow money. If one wants luxury items, that may be the right way to acquire them, although personally I think it is not. It may be useful to borrow money or extend one's credit to get over difficult times. The problem is that when one is in difficulty, one is more vulnerable, and when one is vulnerable, one is less likely to strike a good deal. We should be aware of that.
Some people do borrow sensibly, but when I nipped out earlier for five minutes for a cup of tea, I had a message on my pager. Somebody who came to see me yesterday—a constituency case—needed a little money. The message was to let me know that they had gone into their bank today without much supporting evidence and had come out with a promise of £24,000, just like that. That, I regret to say, is not untypical. It happens all the time and it proves to be a difficulty for some people. I know from experience that when people go out to work on Monday morning and get their pay packet on Friday or at the end of the month, it is depressing to see a large chunk of that money go to pay off past debts, perhaps for consumer goods from which the shine, the polish and the attraction have worn off. We are right to tackle the issue.
One of the problems is that legislation cannot tackle all the issues. We live in a free country where, rightly, people can borrow money if they so desire. Nothing that I have said so far should be taken as an attack on the credit industry, which is extremely efficient and one of our leading industries. There is a case for better education on running finances and the composition of credit agreements. From studies that I have conducted, for example, I know that if a contract includes a big condition in large print, minute writing somewhere else on the contract might not be legal and might not reverse what the big writing says. I know that, but a lot of people probably do not, and they may fall foul of such contracts. That is one small example of how we might start to educate people better. When we are broadening the curriculum in schools, such matters could be added to citizenship classes. Whenever I go to a wedding or speak to couples who are about to get married—they do not come and seek my advice—my advice to them is the same as that given to me: do not overstretch yourselves and do not get into too much debt.
The Liberal Democrat spokesman, Malcolm Bruce, spoke at great length about many issues—I shall not try to touch on all of them, but his speech was comprehensive.
Mr. Pike spoke about people being "ripped off" by loan sharks and cited one or two moving cases.
My hon. Friend Angela Watkinson made a characteristically good, old-fashioned speech containing many good old-fashioned values—that is a compliment. She also provided warnings about debt, and I echo her remarks.
Mr. Battle discussed interest rate charges. I have not been persuaded yet and want to return to this point, but his argument for a statutory instrument to allow the Minister, whoever that may be—an election may well be coming up—to impose a ceiling on interest rates was persuasive. [Interruption.] I might be that Minister. Labour Members seemed to give up on the Minister and started to ask Conservative Members questions about what we would do, which is sensible because they will be doing that an awful lot more after
My hon. Friend Gregory Barker discussed the savings ratio and increased household debt. He provoked a number of interventions, but he made a thoughtful speech, especially when he said that he wanted a "more favourable balance" in the industry, which is a good way to put it.
Ross Cranston made a good point, to which I shall return, when he asked about the meaning of "unfair".
My hon. Friend Andrew Selous made an outstanding speech, especially when he mentioned that financial problems are a considerable factor in many marriage breakdowns. Although financial problems are not the only reason for marriage breakdowns, debts place many marriages under an unreasonable strain, and I am glad that he raised that point. He raised another important issue, the inadequacy of credit ratings, and discussed payment protection, which he described as "a scam".
Unfortunately, I missed the speech by Mr. Lazarowicz, but I am told that he raised the issue of unfairness. I apologise for missing his speech, and that of Mr. Weir, who made the good point that APRs are not a reliable guide to actual interest rates.
In the shortest speech that I have ever heard him make, Mr. O'Neill made the good point that statutory instruments are perhaps needed.
John Mann discussed banks and their practices; Mr. Plaskitt spoke about credit card cheques; and Mr. David, from whom we have just heard, discussed the difficulties with many money lenders. It has been a very wide-ranging debate.
I mentioned my concerns about debt levels, education and small print. Like many other hon. Members, I am also somewhat concerned about the way in which opportunities to borrow money are marketed and sold.
It is right to reduce the burden of proof to unfairness, but we need to know what that means; otherwise, one or two court judgments might be required in order to set a precedent. I am not convinced that we should leave the provision as it is, and before the Committee starts I shall discuss with my hon. Friends whether we want to try to clarify it. After all, clarification is one of the Government's main motivations for introducing the Bill.
On small loans, one of the arguments against interest rate ceilings is that the interest rate is not necessarily the all-important factor. Many people find small loans of £100 or £200 very helpful. The interest rate on those loans might be relatively high, but the companies who lend that kind of money are often more flexible in their approach, so one factor may balance the other. We will need to take a sensitive approach to that in Committee. I would not want such customers to be alarmed, for example, by getting late payment notices when they are only two or three weeks late with the payment and paying only a fiver a week.
I am worried about giving more power to the Office of Fair Trading. The Bill is all about proper regulation and cutting out the loan sharks—that is necessary, and I would not want anyone to get me wrong about that. However, I remember that when I had an Adjournment debate on the horse-racing industry in the House about 18 months ago—it was replied to by the Minister who will reply today—I said that although Parliament can control the OFT through primary legislation, it has no such control on a day-to-day basis. I could bring my case to the House of Commons, but it would not be heard by the OFT, which had the power to destroy the horse-racing industry. There was nothing that I, as a Member of Parliament with the Cheltenham racecourse in my area, could do about it. That is an analogy, but it is relevant. I am particularly worried, for example, about giving the OFT the power to enter premises. I shall return to that in Committee.
Several hon. Members said that there should be more scope for statutory instruments in the Bill—for example, to allow the Minister, if he so wishes, to set interest rate ceilings or to increase the £50,000 fine if it is found to be inadequate. At the moment, I am not persuaded that we should go down that route, although I understand the points that have been made. Again, I will discuss it with my hon. Friends.
We will need to analyse many of these matters in Committee, and I regret that we may not have adequate time to do so. I am afraid that it is the hallmark of this Government to programme everything. That is why, in a few minutes, we will vote against the programme motion, although we will not vote against the Bill itself.
We recognise the need for the Bill. The credit industry and the financial world in general have changed remarkably and are unrecognisable from what they were 30 years ago. We need to root out loan sharks and to create more favourable conditions for those who borrow money, especially the vulnerable. The same people lose out all the time, and the Bill is welcome if it will prevent those same people from losing out in future. I thank the Minister for his courtesy in keeping me informed as he introduced the Bill, and I look forward to taking up the issues with him in Committee.
With the leave of the House, I should like to respond to an excellent debate on a serious issue, which affects many of our constituents and an industry that contributes well to our economy.
In my opening remarks, I said that the Bill's fundamental principles were transparency, responsibility, protection and fairness. I believe that it will deliver that. Front-Bench spokesmen from the Opposition parties made excellent contributions this afternoon. I am pleased that my hon. Friend Mr. O'Neill, who chairs the Select Committee on Trade and Industry, and my right hon. Friend Mr. McFall, who chairs the Treasury Committee, are present. I want to put on record my thanks to them and the members of their Committees for their excellent work in deliberating on credit and other financial inclusion issues.
Many hon. Members made tremendous contributions, because it has been one of those rare occasions in the House when a Bill gets the general support of all parties. Of course, there are matters of detail to discuss and the Committee and Report stages will be eventful. I am grateful for the expertise that hon. Members' contributions have shown. Indeed, we heard that my hon. and learned Friend Ross Cranston has published a textbook on many of the problems that we discussed. Excellent speeches were made and competition for places on the Committee will be strong because many hon. Members want to ensure that the Bill meets the objectives that we are trying to achieve.
The debate generally showed consensus. Mr. O'Brien, supported by Gregory Barker, introduced a little of the political agenda and I want to set the record straight. I shall set out the strong economic position that the Government have achieved—hon. Members would expect nothing less of me. We have the lowest unemployment for 29 years, the longest period of sustained economic growth for 200 years, the lowest mortgage rates for 40 years and the lowest inflation since the 1960s. That is a good record from which to examine many of the issues that we have discussed today.
Some, albeit not many, Opposition Members tried to insinuate the idea that credit was bad for people. On the whole, credit, when used sensibly, is a useful tool for many people. As Angela Watkinson said, attitudes have changed greatly. The industry has expanded from only one kind of credit card in 1974 to the 1,500 products and 39 million credit cards that now exist. In the UK economy, there has been a 50 per cent. increase in total net household wealth. We have experienced average growth of 3.1 per cent. in real household disposable income since 1997. More importantly, 2 million more people are in work. That makes a great difference. I chide the Conservative party a little for presiding over interest rates of 15 per cent. and 3 million unemployed.
I am confident that the macro-economic position that the Government have created gives people the ability to make decisions about their economic choices. Credit can be a useful tool for that. However, there are important issues such as savings. As I said earlier, the key matter for me is the proportion of household disposable income that is spent on interest payments, which was 7.6 per cent. for the first quarter in 2004. That is a good indicator.
I was asked several questions in the debate and I shall try to answer as many of them as possible and as quickly as possible in the time that remains. If I cannot answer them all in the time, I shall write to hon. Members. We shall go through the Bill's many clauses in great detail in Committee. I shall not suffer from lack of advice, given the many issues that were raised in the debate.
One of the key issues raised was the use of secondary legislation in relation to the interest rate ceiling, and I want to clarify our position on that. The hon. Member for Eddisbury is quite right; I did say on the radio that we could introduce secondary legislation on the interest rate ceiling. On reflection, however, I see that that would not be the right way to do it. We will review the position, and I know that hon. Members will raise the issue in Committee. Given the evidence in the report that we commissioned, and the consultation documents that we received from a variety of bodies, we are not convinced that an interest rate ceiling would be adequate to cover the problems involved. The unfair credit test will affect extortionate credit. The reason for not going down the secondary legislation route is that we have consulted fully on this Bill all the way through. It would therefore be wrong to use secondary legislation as a vehicle, without going through further full consultation. I hear what my hon. Friends have said about interest rate ceilings, and I look forward to our debates in Committee, when we shall be able to put on record the various reasons why we do not favour that particular route.
Another key element of the debate involved credit card cheques. My hon. Friend Mr. Plaskitt, a key member of the Treasury Committee, has raised this issue on a number of occasions. He pointed out that one of our own documents talked about the inappropriateness of such cheques. I favour the change to the banking code of practice as a means of dealing with this, but we shall need to monitor the issue and, if that is unsuccessful, we shall have to return to it and see what we can do. If the cheques are being sent to vulnerable or inappropriate people, that could be caught up by the unfairness test. Perhaps we need to look at that.
Many hon. Members talked about the role of credit unions. The Government believe that credit unions have an important role to play in the provision of greater choice and diversity in the financial services sector. We have been involved in a number of initiatives to help the movement to grow and to offer a greater range of services to its members. Credit unions certainly have a key role to play.
Many hon. Members also supported the work of the citizens advice bureaux and the other organisations that give help and support to people who have difficulty with debt. We are working closely with Citizens Advice to inform it of the changes, so as to give it time to revise its information and training. It has estimated that the initial cost to Citizens Advice of the introduction of the Consumer Credit Bill will be in the region of £1 million, so we are going to have to look at the resource implications of that. I noticed that the hon. Member for Eddisbury did not make a commitment to fund the citizens advice service in the way that we do, through the DTI, should that awful day ever arrive when his party is again in Government.
Debt advice is important, and the credit industry is looking at the issue. We are working on many ways of targeting the best kind of advice, particularly in regard to vulnerable consumers. We are helping to develop a gateway to telephone advice services that will signpost consumers to the service appropriate to their needs. We are also working to ensure sustainable funding for the free debt advice sector, and encouraging increased contributions for three-year periods.
There has been a great deal of discussion on the £50,000 penalty limit, and we can usefully discuss in Committee how we arrived at that figure. We can also consider the way in which we want the penalty to be imposed for breaches of requirements, and not for extortionate or unfair credit. The penalty cap is not unprecedented. There is provision for such a cap in the Competition Act 1998. It will be useful for us to have a debate in Committee on that subject, and on the licensing regime. We considered the introduction of a provision relating to 10 per cent. of turnover—a provision that is also in the Competition Act—but we decided that it might be inappropriate. Hon. Members from Scotland raised the question of time orders. I am keen to ensure that they will be a useful vehicle, and we need to take up the offers that have been made, to ensure that there is consistency throughout the UK.
This is an important Bill, and we will look at it in great detail in Committee. It is long overdue—it has taken 30 years to introduce it—and we need to ensure that it gets on to the statute book as soon as possible. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.