I beg to move, That the Bill be now read a Second time.
The Bill represents a major step towards a fairer, more competitive 21st century credit market for both consumers and industry. For 30 years, the consumer credit market has contributed positively to the building of what is now a thriving economy. Responsible use of credit has allowed consumers to enjoy high standards of living, and at the same time business has flourished. But since the foundations of our current legislative framework were established in 1974, everything about the market—from the providers to the consumers and the products—has changed immeasurably. Through the Bill we can complete much-needed reforms, and equip the credit sector to meet the challenges of the modern market.
The United Kingdom has one of the strongest and most efficient credit markets in the world. It represents a quarter of the European Union credit market generally, and more than half the EU credit card market. For most consumers, credit is a useful tool. A combination of sensible borrowing and saving enables them to enjoy the freedom that credit gives: for example, to improve their homes or buy season travel tickets. However, unfair lending and ill-informed borrowing decisions can cause real problems for some people.Many of us will know from our constituency postbags the misery that can be caused by unscrupulous lenders who coerce people into credit agreements that they neither need nor understand.
I congratulate my hon. Friend on introducing this measure, which I know is very close to his heart; indeed, he has been desperate to get to the Dispatch Box to move this Second Reading. Getting in over one's head and into debt that one can no longer afford to pay drives some people into depression and, in other tragic cases, even to suicide. A main cause is the high interest rates that some companies can charge, over which there is little control. Can measures be introduced—if not in the Bill then perhaps by future ministerial order—to control interest rates, so that people do not get into such trouble?
I am grateful to my hon. Friend for that intervention; he has a good track record in assisting constituents who get into such difficulties. The question of interest rate capping accompanied our pre-election discussions of the Bill and of the consumer credit White Paper. The Government do not consider capping to be the way forward, because there are many other hidden charges that can equally cause such misery. But I did undertake to keep the capping issue under review, and to examine it in the light of future developments and of our efforts through this Bill. However, at the moment there is no need for such caps.
I am very grateful to the Minister for giving way; I am glad to note that he is giving a speech similar to that which he gave the last time we debated Second Reading of this provision. Let us hope that the Conservatives and the Liberal Democrats stick to the position that they adopted before the general election. I want to push him on the issue of credit card cheques, on which he promised some movement. He will know that many credit card companies send people blank cheques, saying that all that they need do with such a cheque is to write in the figure and then cash it. Many do not understand that they might be entering into an agreement that, should they fall foul of it, could lose them their home. Will the Government try to ensure that the practice of issuing credit card cheques comes to an end?
I am grateful to my hon. Friend for that intervention. He, too, has a good understanding of this issue; indeed, he was a member of the Standing Committee that previously discussed it. The unsolicited issuing of credit card cheques is a problem, and I undertake—as I did before—to consider introducing regulations and to discuss with the industry what can be done to stop the issuing of such cheques.
I note my hon. Friend's description of the Government's position on interest rate caps, but what exactly is the argument against introducing them? Does he honestly think that there is some ethical justification for major financial services companies levying interest rate charges of 25 to 29 per cent. per annum?
I understand why my hon. Friend raises this issue, but there is not enough time during a Second Reading debate to go through the detailed arguments surrounding it. If he catches the eye of the Whips, he can join the Standing Committee and we can then have this argument in greater detail. For example, we can explain why, in the light of evidence that we took from other countries, the interest rate cap does not work.
I understand what the Minister is saying about interest rate caps, but does he not accept that another problem exists—the calculation of annual percentage rates—that has been brought to our attention for the purposes of this debate by Which? Different methods of calculation can lead to the paying of very different rates of interest, even though they may seem similar. Does the Minister propose to deal with this problem?
The hon. Gentleman will know that last October, we introduced regulations concerning a single way of calculating APRs. The issue is causing confusion to the consumer, and this Bill is about responsible lending and ensuring that consumers know their rights, but it is also about responsible borrowing.
I congratulate the Government and particularly the Minister on reintroducing this Bill so quickly. But as he knows, it was preceded by intense negotiations with the financial services industry, and despite the good measures in it, there are still problems with the definition of a single APR, with data sharing and with the issuing of unsolicited cheques. Will he work with the industry to ensure that such matters are dealt with? Transparency and competitiveness are at the heart of this Bill, and without transparency and an informed consumer, we cannot have a fully competitive market. Will the Minister ensure that the industry delivers on these issues, as it said it would?
My right hon. Friend chaired the Treasury Select Committee and I am grateful to him for the work that he and his colleagues have done on this issue. There is a team effort across government and across Parliament to ensure greater transparency on all these issues, and I undertake to continue to work with the industry in that regard. We wanted to introduce the Bill early in this Session in part because of the consensus that the industry and the various consumer groups reached on many of these issues. We have tried to maintain that consensus, and I agree with my right hon. Friend that we need to work with the industry on data sharing, for example. We will continue to do so.
I endorse entirely the comments of Mr. McFall, who chaired the Select Committee in the previous Parliament. Does the Minister accept that although we have made progress in achieving one method of calculating APR, that will achieve nothing in terms of transparency so long as there are 10 different methods of calculating interest, depending on when the calculation starts? There is no transparency, and consumers are therefore unable to compare one product with another.
I look forward to debating transparency, the unfairness credit test and associated issues with the hon. Gentleman in Committee.
I realise that various Members want to intervene, but I want to make a little more progress first.
As I was saying, many of us know from our constituency postbags the misery that can be caused by unscrupulous lenders who coerce people into credit agreements that they neither need nor understand. It is often society's most vulnerable members who are the victims. More than half of over-indebted households have incomes of less than £7,500 per year. Members of this House may be familiar with some of the worst examples of the shabby practices employed, such as the lender who coerced a couple suffering from mental illness into debts totalling £5,000; or the company that took advantage of a customer's mental health problems to sell him double-glazing, when all that he had requested was a cat-flap, saddling him with debts of £50,000. And as my hon. Friend Mr. Clelland said earlier, people have committed suicide because of the problems associated with debt. We simply cannot afford to stand idly by when faced with these predatory practices.
I apologise for missing the first few seconds of my hon. Friend's speech, and I congratulate him on retaining the skills that he displayed in the Whips Office and on ensuring that this Bill was discussed at earliest possible moment. Will he make it clear to the House that the proposals on retrospectivity are still contained in this Bill—a fact that will be of great concern to those who have been through the process, but who were still the victims of extortionate loans? Will he also leave a little leeway in his thinking? The Meadows case, which gave rise to some of the thinking behind the Bill, comes up for appeal on Monday, so we might need to build in some slack, depending on what that judgment brings.
We will watch that case with interest, on which I cannot comment as it is going to appeal, as my hon. Friend says. The issue of retrospection is dealt with, and I want to make it clear that we have discussed, and continue to discuss, with the industry the problems associated with it. We will of course return to this issue in Committee.
The Minister is being very generous in giving way. I, too, welcome the reintroduction of this very important Bill, which will provide greater protection for consumers. I want to press him on the question of late-payment charges. A constituent of mine who had a late bill of £33 was recently charged a late-payment fee £25. Will this Bill address such problems?
It will in some respects but not in every respect. However, the work of the Financial Services Authority, combined with the banking code, should resolve some of these problems. I shall return to the question of interest rate caps and hidden charges. We are trying to establish a transparent process through which the borrower knows exactly what the charges are and when they kick in. Indeed, the annual written statement enables the borrower to understand their position. This is a wake-up call to those in the industry, to ensure that unscrupulous ones cannot operate those hidden charges in the way that some of them have done in the past.
I want to reflect on the exchange that my hon. Friend had with my right hon. Friend Mr. McFall because a solution can be found with the industry. The savings sector of the industry publishes some very good, transparent information on websites and so on that helps people to make judgments about savings. A discussion between my hon. Friend's Department and the industry could achieve a vehicle to produce similar mechanisms to provide information to the consumer, perhaps using a web-based tool, thus making such things transparent and open for everyone.
My hon. Friend, who has an interest in these matters, shows that there are opportunities for discussion with the industry and consumer groups to try to achieve a consensus on data sharing. I have always said that data-sharing procedures should not be used as a blanket to stop things happening. I am happy to initiate those discussions with the industry, and I am sure that they will take place.
My hon. Friend is being most generous in giving way. I wish to mention the principle according to which the more consumers borrow, the more that the credit card companies or other lenders allow them to borrow, thus pushing them to the very limit of affordability. Can he assure us that the Office of Fair Trading will look at that key issue when it considers lenders' credit competence?
Again, if my hon. Friend can contain himself, in a few minutes' time, I shall mention the OFT's powers in respect of what he outlines.
I thank my hon. Friend for his patience in giving way. All hon. Members know of his dedication to this issue: he is a champion of the consumer. Will he consider the possibility of linking interest rates to borrowers' earnings? I hate to labour the issue of capping interest rates, but a line must be drawn somewhere. After all, there are caps on speeding. Drivers try to get around them—they have all sorts of devices to spot speed cameras up ahead—but the fact is that those limits exist and drivers are hammered if they are caught breaking them. Obviously, lenders will try to get around the legislation, but they should know that they will be hammered if they get caught. That is the interesting feature about those caps.
Well, it looks as though there will be competition for the places on the Standing Committee. Clearly, the interest rate cap will take a number of sittings to consider. I understand where my hon. Friend is coming from, but I am not convinced about the argument that interest rate caps work. Our research shows that other interest rate caps around the world do not necessarily work, but I am sure that we will have an interesting debate on that issue. I am grateful to my hon. Friends for showing interest in that matter so early in my speech, thus revealing our concern, because we all represent consumers and people who have had problems.
The Bill builds on the progress that we have already made in terms of secondary legislation, initiatives for tackling over-indebtedness and pilot projects to tackle illegal money lending. We have standardised the ways that APRs are calculated, so that consumers can compare the costs of credit deals with confidence. We have ensured that proper information is given in adverts and contracts for credit products.
The trading standards pilot schemes that we have introduced and funded in Birmingham and Glasgow are demonstrating new ways to get tough with loan sharks and illegal moneylenders. The Bill represents the next step towards our vision to provide protection for consumers in a fair, clear and competitive credit market.
Reform of the existing legislation is long overdue. When the House passed the Consumer Credit Act 1974, only one credit card was available, on which consumers owed a total of around £32 million at today's values. Today, overall credit card borrowing is counted in billions, not millions, of pounds. Consumers can choose from well over 1,000 competing products from a wide range of providers.
We have faced some criticism for the time that it has taken to introduce the Bill, but I make no apology for taking time to get it right. We need to ensure that our changes make this complex and important market effective not just for today, but for the future, too. That is why we have consulted carefully with business, consumer groups and regulators, and their input has helped to get the Bill right.
The Bill is built around three key themes: enhancing consumer rights and redress, improving the regulation of consumer credit businesses and ensuring more appropriate regulation. Our first key goal is to enhance consumer rights and redress. The current tools available to consumers to obtain redress or to solve credit disputes are, at best, limited. Where disputes arise, consumers often have no option other than court action, which can be costly and time-consuming. Moreover, the chances of people winning cases under the existing extortionate credit test are slim, and there are few effective mechanisms for those people trapped in unfair agreements or subject to unfair lending behaviour to obtain redress.
As my hon. Friend knows, I have been concerned about unfair relationships, both from the consumer's point of view and from that of the reputable bits of the industry—for example, Nationwide and Barclaycard, which both have offices in Northampton. How does he intend to set out or negotiate the terms of the unfair relationship provisions? How would they be established? What lengths would the consumer and the industry have to go to in establishing whether a relationship was fair or unfair?
I shall address that issue in a few moments, so I hope that my hon. Friend will bear with me.
Consumers should have the right to challenge unfairness where it exists and obtain redress where appropriate. That is why the Bill will introduce a mandatory alternative dispute resolution system—an ADR scheme—for consumer credit matters, thus giving consumers a fast and effective means to challenge unfair practices without the need to resort to court action. Importantly, all consumers will have access to redress using the ADR scheme, not just those who can afford to pay for it, because it will be free and no lawyers are necessary—not that I have got anything against lawyers.
Decisions taken under the ADR scheme will also be binding on the consumer credit business, so that consumers can be confident that redress is achievable. The system will be run by the Financial Ombudsman Service—an independent and credible ADR scheme that already provides ADR under the Financial Services and Markets Act 2000. Thus the FOS already deals with approximately 75 per cent. of all consumer credit business by value.
Disputes that arise under the Consumer Credit Act 1974 will enter the ombudsman's jurisdiction on a phased basis, thus giving business time to prepare for the new regime and ensuring that the FOS is not overwhelmed by consumer credit disputes. However, ensuring fairness on both sides of such disputes has been a key part of the Government's work on developing the system, so complaints will be considered by the FOS only when a lender's internal complaints-handling procedures have been exhausted. The FOS will be able to refuse any frivolous or vexatious claim.
The Bill will also empower consumers by replacing the out-of-date extortionate credit test. Too many people have found out the hard way that, 30 years after its introduction, the test does not provide effective redress. Not only does the current test set the bar too high to be of real use for consumers, but its application is usually confined to the cost of credit or terms of the credit bargain at the time it was made.
Hon. Members will appreciate that taking out a credit card or personal loan is not just about how much the agreement says that it will cost; there are many other factors to take into account. The Bill will introduce a new test based on the principle of unfairness, which was mentioned by my hon. Friend Ms Keeble. Consumers will be able to apply to the courts to challenge agreements where an unfair credit relationship exists. That will allow the consideration of all aspects of the transaction, including the lender's conduct before and after making the agreement, its administration of the loan and the terms and conditions of the agreement. It will also ensure that the courts will have a wide discretion to assist those who face unfairness from lenders.
We have given careful consideration to the nature of the new unfair relationships test and have explored its implications thoroughly. If we are to give consumers the rights and redress mechanisms that they deserve, it is imperative that the test works effectively. It is also important that the test does not constrain or impede the courts' ability to do justice in every case. That is why I will not try to define an unfair relationship. It is for the courts to determine such things according to the relevant facts of each case. Unfairness is not a new concept for the industry, and fair lenders have nothing to fear from its introduction.
In anticipation of other challenges on that issue, hon. Members will know of the Pepper v. Hart judgment, whereby should Ministers try to give indications of constraints on certain issues when speaking at the Dispatch Box, their comments can be used by the courts and by others to stifle debate.
I do not want to do that. As I have said, the unfairness test is not a new concept for the industry. The contributions that Members will make in Committee will give us an opportunity to develop wider parameters that will be very clear when it comes to court cases. However, if we are too restrictive at this stage, there may be loopholes.
I also offer my hon. Friend a word of congratulation. We have struggled to get this Bill; we got far with it in the last Parliament and we are back again. We are trying to improve the law after 30 years of the 1974 Act, which was crippled by the use of the word "extortionate". Nobody could define the term, so there were no extortionate lenders and only 31 cases were brought in all that time. What worries some of us is that the unfairness test will remain as vague and will not result in cases being brought forward. Does he anticipate a test case setting the ground rules, or will individuals have to try to get to court to test the provision every time?
I hope that that will not be the case and that the alternative dispute resolution process will operate first and resolve the issues. When issues go to court, clearly the court will test the position. However, there will be advice, and the Office of Fair Trading will offer guidance on the issue. The unfairness test is already within the sector and parameters already exist, but I do not want the terms of the Bill to be restrictive. My right hon. Friend is right to suggest that the unfairness test is a lot lower bar than the extortionate credit test, which hardly anyone ever got over. We are now in a better position.
My hon. Friend obviously does not want to make the case law today even though many of us wish that he would. Is not the issue that if the matter is left to the courts, the man on the Clapham omnibus will provide the test—an objective test? Credit, however, is very much a subjective problem, and poor people lose out. Does he not agree that the test should at the very least include the personal circumstances of the individual when determining whether a bargain is fair or unfair?
I hear what my hon. Friend says, and I do not entirely disagree with him. It is one of those issues that will become clearer as we discuss it further in Committee. Like the industry and consumer groups, I am prepared to listen to what hon. Members on both sides have to say. The last change to the law was 30 years ago, so this may be our only attempt to get things right. I want to get them right and make sure that vulnerable people are not exploited. Clearly a large percentage of the industry operate in a proper manner, but there are those who do not. We have to make sure that people are protected. We will have a thorough debate about the concept of unfairness. I resisted that temptation on numerous occasions during the previous process on the Bill. We shall see how we go on in the future.
Is not the fact that it has taken 30 years to introduce new consumer credit legislation a good argument for at least introducing an enabling clause that would allow Ministers to introduce an interest ceiling if the evidence comes forward to convince them of the case for that; otherwise we might have to wait another 30 years before such a ceiling is introduced?
I am confident that we will not have to wait 30 years, because consumer credit and the use of consumer credit have grown rapidly for the reasons that we have described. I know that the hon. Gentleman has raised the issue of the test and the cap before, and I gave him an undertaking last time. I shall make it clear that there will be a review of the position if what we introduce does not work. I am very confident that the unfairness test and the ADR will work and that there will be no need for interest rate caps, but we will always keep that option open.
The Bill is about consumers being confident that they are borrowing from responsible lenders, and that is why our second objective is to improve the regulation of consumer credit businesses. The bureaucracy associated with licence renewals, together with limited information-gathering powers and lack of intermediate sanctions, hampers the Office of Fair Trading in running the licensing regime and in policing licence holders. Overhauling the licensing regime will produce a more streamlined system that is easier for the OFT to regulate and more proportionate for business. The OFT will be able to focus attention on problem lenders and problem sectors, and to impose sanctions on traders who misbehave. Consumers sometimes suffer as a result of a lack of information during the life of the loan.
Has my hon. Friend considered outlawing the unfair order of payment on credit cards? That is a problem in my constituency and many others when constituents with 0 per cent. credit cards do not know that the cheapest debt is paid off first. They can therefore rack up extra debts without realising it. That has led to credit card providers making an estimated £500 million extra profit a year. In my constituency, the average debt for those who ask for help with debt is £35,000, so I hope that my hon. Friend will look into the matter.
I welcome my hon. Friend's contribution. Under the regulations that were introduced in October last year, we addressed the issue of transparency and the need to make sure that advertisements and agreements made it very clear what the interests rates were that people had to pay. However, I give her the assurance that we will continue to look at the issue.
I was referring to the lack of information to people during the life of a loan and especially when they fall into arrears. At present, lenders are not obliged to provide much information to consumers during the loan term, so the Bill has proposals to create minimum standards for lenders to provide regular account information and to tell consumers when they default and when they are charged. These reforms will ensure that lenders can be prevented from continuing any bad practices 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.
Improving the standard of regulation is of no use, however, if that regulation does not do the job for which it is designed, so this brings me on to our third aim—to ensure that regulation is appropriate. Regulation must be appropriate and measured, ensuring comprehensive protection for consumers while allowing industry the flexibility to innovate. The UK has one of the most dynamic credit markets in the world but, to keep it that way, regulations must meet the needs of the market, the consumers and the industry. Making sure that consumers are protected is an important part of creating that fair and effective credit market. So the Bill provides comprehensive protection for consumers by removing the £25,000 financial limit, extending the protections of the Act to all consumer borrowing.
An extensive period of consultation has highlighted concerns about the impact of regulation on business lending and high net worth consumers. The Bill therefore provides protection where it is needed by maintaining the protections for small business lending up to and including £25,000, but excluding other business lending. The Bill allows industry flexibility, with exemptions allowing high net worth borrowers to opt out of regulation.
It is also important that lenders are confident that they are operating on a level playing field. Currently, many lenders are unfairly penalised for minor and insignificant technical errors to an agreement. The Bill makes the section 127 provisions on the enforceability of defective agreements more proportionate. Passing discretion to the courts will not remove consumer protection, because agreements are still unenforceable unless the court decides otherwise. However, it will increase fairness across the sector, and allow lenders to compete on the basis of best practice.
The Bill empowers consumers and encourages fair standards throughout industry.
My hon. Friend will recall that in the previous discussions, we raised issues about the money and advice that is provided. The procedures that he has outlined are extremely good, but consumers will need a lot of help to get through the process involved. Has he given thought to that?
I said at the outset that the Bill is part of a series of measures that the Government are introducing to support financial literacy, education and consumer protection.
I shall answer the point before I give way again.
The financial inclusion fund that was announced in the last Budget means that £45 million will be made available for consumer education. It is vital and will go to a variety of organisations that offer advice and support. Credit when used properly can be a useful tool, but we do not educate people about money from an early age. One of the issues with the financial inclusion fund will be to try to give education about the use of finance to all people from an early age.
Has the Minister thought about making representations to the Chancellor of the Exchequer for a windfall tax on the billions pounds of profits made by the high street banks every year so that we can fund an extension of credit unions that deal with a totally different market from the banks, which do not want to know about low-paid borrowers, and can also fund an education process so that people know the difference between priority and non-priority debts?
My hon. Friend raises an interesting point. Credit unions are vital, we are supporting them and we want them to develop, but I will leave making representations to the Chancellor on windfall taxes to my hon. Friend.
The Bill is built on principles of transparency, protection and fairness and sends a clear message to unfair and exploitative lenders that there is no place for them in our society. We have a clear vision of how a healthy consumer credit market should function, with responsibilities for both consumers and industry. We see consumers taking responsibility for controlling their finances, using credit sensibly and taking advice at the earliest opportunity. We see the industry providing consumers with the information that they need to make informed choices, lending responsibly and ensuring that advice and support are available for consumers in difficulty. The Bill sets the framework for that vision of a fairer, more competitive consumer credit market for the 21st century and I commend it to the House.
I thank the Minister for the kind and courteous words with which he opened the debate and, in turn, welcome the Secretary of State to his new post. We had contact when he was Minister for Employment Relations, Industry and the Regions and I had tremendous admiration for the way in which he carried out that role. I look forward to working closely with all the Department of Trade and Industry team in my new capacity.
The Conservative party welcomes the reintroduction of this important and overdue Bill to update our consumer credit legislation. Only one or two changes have been made to the Bill introduced in the last Parliament and the measure has broad support on both sides of the House, as well as from key consumer organisations and the credit industry itself. That is a strong working basis on which to take the Bill forward. I hope that the Minister enjoys that while he can because it is not often that the Government manage to maintain the confidence of even their own Back Benchers, let alone forge a broad consensus across the House.
The need for the Bill is clear. Current legislation governing the consumer credit industry is now seriously out of date and, as such, fails to provide consumers with the protection that they need in a rapidly expanding and increasingly diverse and confusing credit market. We have already heard that confusion can be caused when people compare rates of interest calculated on different bases.
It is 31 years since the last consumer credit legislation was passed. In that time the credit landscape has changed out of all recognition, partly as a result of changing lifestyles and attitudes to debt, and certainly because of the liberalisation of financial markets, which has allowed a highly dynamic and sophisticated industry to develop. As the Minister told us, only one type of credit card was available in 1971, but today there are more than 1,300. Thirty years ago, £32 million was owed on credit cards, but today the figure is almost £50 billion.
Although that expansion has unquestionably increased competition, there has been a growth in some of the most unacceptable elements of the credit industry. As Members of Parliament, we have seen in our surgeries the consequences of irresponsible—or worse, rogue—lenders and extortionate credit agreements. We have seen such consequences destroying people's livelihoods, families and mental heath. In the worst cases people have tragically been driven to suicide because they have been unable to cope with the huge debts that they have built up. Such people include Stephen Lewis, who was highlighted in today's Daily Mail. He ran up debts of £70,000 on 19 different credit cards, despite earning just £22,000 a year. When he could no longer meet the repayments, he tragically took his own life, leaving a wife and two young children.
I pay tremendous tribute to the work of citizens advice bureaux and other debt advice organisations that help many individuals and families to deal with financial difficulties. Without those bodies, many more people would suffer the same sort of problems, which explains why we need the Bill to crack down on loan sharks, whose activities are often the cause of such difficulties. Those people often deliberately set out to deceive consumers.
When we considered the previous Bill in Committee in the last Parliament there was much debate about loan sharks. Of course everyone abhors those who use such ostensibly foul practices. However, the difficulty is that we have such a competitive market now that many of the credit card and personal loan companies are scrabbling around in a fairly small pond to try to get the few extra remaining people, so many of the marketing techniques that they use go well beyond what most of us would accept as normal practice. That rarely comes to light because it is the loan sharks that get in the newspapers and those companies are perfectly respectable in all other regards. Does the hon. Gentleman hope that marketing practices such as sending people unsolicited pre-approved applications for credit cards and personal loans will be done away with?
I shall come on to that point. I am grateful to the hon. Gentleman for his intervention and hope that he can be persuaded to serve on the Committee yet again. He addresses extremely important issues and the sort of problems that need to be stamped out. There is no doubt that most people practising in the field operate reasonably and responsibly, but if people step over a mark, they need to know that legislation will be there to clamp down on certain activities.
Debt itself is not bad, as the Minister said, but unaffordable debt certainly is. As we have learned, debt that is affordable one year might not be the next if employment circumstances, people's income or interest rates change significantly. That explains why we should be worried about the growing level of debt in Britain, which is rising at a staggering £1 million every four minutes. That means that personal debt has already risen by £10 million during the course of the debate. In 2004 alone, debt increased by £116 billion, which was the largest single increase in debt since the Bank of England was founded in 1694. According to the charity Credit Action, total personal debt in Britain has broken through the £1.1 trillion barrier. As my right hon. Friend Mr. Letwin said when he was shadow Chancellor:
"It took 600 years of banking history for household debt to reach half a trillion pounds. Now, under seven years of Labour, this has doubled."
I want to try to keep the consensus going, but I remind the hon. Gentleman that 80 per cent. of the trillion-pound figure is mortgage repayments.
I understand what the Minister is saying, but we feel that there is a tendency to be complacent. We see today from the Daily Mail shocking statistics showing a sharp increase in the number of people falling behind in their debt repayments. Credit card arrears and bad debts are growing and bankruptcies and home repossessions are up by a quarter. Appeals to the consumer credit counselling service are up by 60 per cent. since last year. Although most people are managing, there is evidence that a significant and growing minority are unable to manage.
I, too, served on the Committee that considered the previous Bill and, as the hon. Gentleman probably knows, I have taken an interest in the matter for some time. I sincerely welcome the Conservative party's approach on the Bill, but I wonder whether he will go an extra yard in the direction that I would like to push the Minister. In addition to having an unfair lending test, I would be interested in building into the Bill a responsible lending test to put an onus on those lending money to act more responsibly. At the moment they can slide away from that responsibility, which is why we see stories such as that in the Daily Mail. I do not blame the borrowers for that, but the lenders.
I hope that we can address that important matter in Committee, although we must be clear about whether such a test could be legally enforceable. Several aspects of the Bill are worrying because the court will be left to decide where boundaries lie, but there are clearly practices on which we want to clamp down, so we will need to consider in Committee how best to achieve that.
According to research carried out for the DTI and announced this week, 9 per cent. of people spend more than half their income on credit repayments. According to Credit Action, the average amount owed by every man, woman and child in the UK is approximately £18,000. Research by Datamonitor reveals that consumer borrowing for each adult in the UK through credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to more than £4,000, which is an increase of 10 per cent. in just one year and almost 50 per cent. since 2000.
Although growing debt is an international issue, it has risen faster here than elsewhere. According to the Bank of England, household debt is now 140 per cent. of aggregate income, which is above the level in the United States and most European countries. Indeed, the Bank also confirms that UK household debt is rising at 15 per cent. per year, which is more than in the United States and most European countries. Against that background, it is hardly surprising that the Bank has warned of the consequences of further borrowing by saying:
"The continuing rapid build up of debt by many borrowers . . . may be building up vulnerabilities."
Surely the hon. Gentleman recognises that about 80 per cent. of household debt is mortgage debt. As a proportion of monthly income, it amounts to only 7 per cent. under this Government, whereas it amounted to 15 per cent. under the previous Conservative Government.
The Minister made the same point. I am saying that when such debt is affordable, it is fine, but people are beginning to find it unaffordable. According to the figures announced today, there has been a 25 per cent. increase in mortgage repossessions. I was in the House with John Battle in the 1990s and was involved in homelessness issues when there was the horrific problem of repossession. Our anxiety is that although most people can afford to repay their debts, there are indications that that may not be the case for long.
We look to the Minister to reassure the House that the Government have truly understood the problems that rising debt can cause. I fear that that might be too much to hope, however, because the Government are a serial borrower. If ever there was a case for debt counselling, it is the Chancellor of the Exchequer, who spends as if there were no tomorrow, and the Government, whose top-up fees mean that hundreds of thousands of young people will start their working lives with average debts of £30,000.
Even today—I know that the Minister wants consensus, but that is not always possible—there is a new report, showing that a quarter of parents have to borrow more because their children cannot afford to move away from home in their 20s and 30s because of their high debt. The very same Government have raided our pensions, undermined our savings culture, forced through tax rise after tax rise and taken away more and more of people's hard-earned money. It is little wonder that so many people are getting into debt to alleviate the financial difficulties that Government actions have caused.
We are all rightly concerned about some of the practices designed to encourage people to take on extra debt, especially if they cannot afford it. To pick up on the comments by Mr. Wright, I imagine that all of us have been offered increases in our credit card levels without the most basic checks having been made to determine whether we could afford to spend up to that amount. I have a credit card on which I typically spend about £200 a month. Gradually over the years, the company has given me a credit limit of £3,500 without checking whether I can afford to repay that amount. How can it be responsible lending to encourage people to borrow without checking that they can afford to pay back the money when the time comes? I hope that we address that in Committee.
I also hope that we can address the point made by Chris Bryant about credit card cheques, which is when card providers issue their customers with so-called convenience cheques that draw on their credit card. What is not made clear to customers is that spending on those cheques is usually at a higher rate of interest than that charged for normal use of the card, with a shorter interest-free period or none at all and without the protection that applies to credit card spending under section 75 of the Consumer Credit Act 1974. In many cases, the cheques are issued without the customer having requested them. Again, the Committee must address that.
Hon. Members have spoken of their support for placing a ceiling on interest rates. Although such a move may sound superficially attractive, it would prove damaging for the consumer. Comparative research carried out for the Department of Trade and Industry across European countries and in those US states where rate caps already exist show clearly that such a measure drives down product diversity and causes lenders to withdraw from the market. That reduces choice and access for consumers. In France and Germany, for example, it drives borrowers to make greater use of illegal lenders than we do in the UK, where there are legal credit options for such borrowers.
Is it not the case that very high interest rates usually reflect the fact that the loan should not have been made? That is the issue. If lenders were barred from charging a high interest rate, they would be out of the market. I acknowledge, of course, the problem of illegal lending.
It is also the case that the APR is not necessarily a good way to make that judgment. If I borrowed £50 from the hon. Gentleman and paid it back in 20 instalments of £3 a week—a total of £60—that would be a reasonable way of repaying the debt, but it would have an APR of 153 per cent. We need to look carefully at the problem. What seems like a high APR is sometimes a reasonable approach because of the sums involved.
The picture of indebtedness in the UK makes clear the need for an effective legislative framework to ensure that consumers are given adequate protection and that the credit industry is sufficiently transparent and works fairly and efficiently for all persons involved. The Bill presents us with a valuable opportunity to create that framework. Its objectives to enhance consumer rights and redress, to strengthen the regulation of consumer credit businesses and to provide debtors with clear, accurate and regular information about their credit agreements are the right way forward. That is why the Conservative party offers its broad support for the Bill, but as it currently stands, it is far from perfect. Indeed, some significant issues must be addressed if it is to reach its potential and ensure that the interests of the consumer are not inadvertently damaged.
By far the most pressing issue is the lack of detail, particularly in relation to a number of the key proposals. That is disappointing to say the least. The same criticisms were made by the Conservative party, the industry and consumer groups when the Bill was first debated in January, but in five months nothing has been done to provide that detail. That must make us question the Minister's comments on Second Reading in the last Session, when he said:
"The reason that 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."—[Hansard, 13 January 2005; Vol. 429, c. 471.]
All of us will find it disappointing that we have not moved forward rather more since he said those words.
Clause 19 replaces current provisions on extortionate credit terms with a new unfair relationship test. It widens the scope of circumstances that the courts may take into account in deciding whether a credit agreement is unfair to a debtor. That is a welcome move, but the Bill fails to offer any definition or examples of what constitutes an unfair relationship. Without such definition, neither creditors nor debtors will ever fully understand their responsibilities and rights. For a Bill that intends to increase consumer protection, that is a fundamental flaw. As Lloyds TSB explains:
"The Bill introduces a new unfair credit relationship test, which means consumers can challenge unfair practices and terms in court. However, the meaning of 'unfair relationship' is vague and the scope of the provision is generally too wide for both consumers and creditors".
It goes on:
"The Bill contains no guidance for consumers as to what constitutes 'fair' or 'unfair' to enable them to identify when they have a valid claim. Similarly, there is no guidance for creditors on how they should conduct themselves to ensure that their actions are not 'unfair'. Unlike comparable legislation in respect of unfair contract terms or financial regulation, there is not even a non-exhaustive list of relevant factors."
The Minister talked today of his desire to change the system of redress and to remove that from the courts, but the lack of detail means that people will have to go to court, with the years of waiting and the stress that that involves, to find out whether they have been treated unfairly.
Both the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999 demonstrate that it is possible to give significant guidance to consumers and creditors by means of a non-exhaustive list of the factors that are relevant to an assessment of fairness. There is, therefore, no reason why a clear standard could not also be applied for this Bill. The Government know full well that that was a major issue when it was introduced in the last Session. They have had five months to pad out the detail, yet they have done nothing. That is far from trivial. A legal opinion from Michael Beloff QC finds that the test as currently drafted breaches the requirement in the Human Rights Act 1998 of legal certainty in article 1 of the first protocol. I should be grateful if the Minister would clarify the situation.
The hon. Gentleman will be well aware that most of the argument on whether terms were unfair concentrated not on terms of enforcement on the poor, but on things such as late payment fees for credit cards and the mis-selling of payment protection insurance and gap insurance. Those are major sources of revenue for big firms—credit card firms in particular—and cause enormous annoyance to consumers. Why should the courts not be able to interpret what is unfair or fair in such circumstances? Has he no faith in the competence of the courts?
The problem is that with the lack of clarity, lenders will withdraw from lending to certain categories of people. They will pull back in a way that is unhelpful to consumers. They know that it will take years—perhaps three, four or five—to bring a case to court. There will then be appeals and it will take time to prove whether something was unfair or not. Throughout that time, they will exercise much greater caution than would have been necessary had there been greater clarity.
I share the hon. Gentleman's concern about the lack of clarity, but I come to it from a completely different angle. The people I represent who get into debt go nowhere near the court because the lender reschedules the debt and gives them even more money—that is how it works—so they are not given the opportunity to go to court to get redress in the first place. We will have a vague definition of unfairness and the court will be there in the background, but the people I represent will not be able to make use of it to get justice and fairness. We need clear guidelines on unfairness to send out a signal so that people do not go to court because everybody knows what they are dealing with.
I agree with the right hon. Gentleman that for many people, particularly those on low incomes, the prospect of going to court and taking on a major financial institution must be terrifying, so they will try to use any means to avoid that. One reason why the existing legislation on extortion has not been used more is that many settlements have been made on the steps of the courtroom, where people decide to settle before the matter gets to court. If we can get the detail into the Bill, we can avoid many of those problems.
Most importantly, this is not just an issue of concern to lenders; it is, as we have said, the consumers whom we seek to protect who will suffer most from the lack of detail. If the parameters are not clear, lenders will become more cautious in their lending to ensure that, some years down the line, they do not find that they have inadvertently operated in an unacceptable way. That extra caution is exactly what will drive people to more unscrupulous lenders. Moreover, that is not just a concern of lenders. As the charity Credit Action points out, on behalf of consumers:
"The presumption that all relations are 'unfair' unless proved otherwise is in itself unfair, excessive and contrary to normal British law."
We are also concerned by the way that the Bill will apply the unfair relationship test retrospectively, to those existing agreements that will continue beyond a transitional time frame. As yet, that time frame has not been decided, which leaves both consumers and the industry wholly uncertain about the extent to which the test may apply to their agreements. Without detail over what constitutes an unfair relationship test, neither creditors nor consumers are in a position to know whether their existing agreements could be open to reinvestigation.
We also have concerns about the extended scope of the financial ombudsman service. One of the Bill's fundamental aims is to improve redress for consumers, and that is right, but on the "Money Box" programme recently, the ombudsman himself said that he had real concerns about his office's capacity to cope with the volume of work. There is no question that the provisions in the Bill will add to that work, so we must question whether it has the capacity to achieve what it sets out to do.
The Bill, in its efforts to improve regulation of the credit industry, also proposes an expanded role for the Office of Fair Trading to regulate the conduct of licensees. Clause 38 provides for the imposition of requirements on licensees if the OFT feels unsatisfied with the licensee's work; clause 46 allows the OFT access to premises and documentation; and, ultimately, clause 52 allows the OFT to impose civil penalties, comprising fines of up to £50,000, on those who do not comply with its requirements.
My colleagues and I will support measures to improve the regulation of the credit industry—that is an important step towards protecting consumers' rights—but we will be able to protect their rights only if that regulation is transparent. Clause 30 states:
"The OFT shall prepare and publish guidance in relation to how it determines, or how it proposes to determine, whether persons are fit persons".
As yet, despite repeated calls, that guidance has not been published. How then, is Parliament supposed to agree that this measure is the right one to take, if it does not know how the measure will be carried out in practice?
Indeed, the Joint Committee on Human Rights, in its fifteenth report of the last Session, expressed its concerns regarding the power to impose requirements on licence holders. The Committee concluded that the
"unfettered scope of this power fails to satisfy the requirements of reasonable legal certainty and also gives rise to a risk of disproportionate use of the power in practice. We are therefore concerned that this provision as currently drafted, without greater specificity, gives rise to a significant risk of incompatibility with Article 1 of Protocol 1."
Whether or not that is the case, and I would be grateful if the Minister clarified the situation when he sums up, the fact remains that the accountability of the regulator is inevitably limited. If we hand more powers to a regulator, accountability must be decreased, and if we decrease accountability, we cannot be improving transparency. Without transparency, how can the Government ever claim to be increasing protection for the consumer?
As Credit Action makes clear:
"The role given to the OFT is very strong. In many ways they will be acting as both prosecutor and judge and this could easily lead to an un-level playing field. The detail of on-going monitoring obligations are not included in the Bill and will be left fully in the hands of the OFT, with further guidance being issued at a later stage. It is the view of Credit Action that the powers given to the OFT which includes 'the right to monitor as it sees fit, businesses being carried on under licences' are excessive."
We must also make sure that any regulations made under this Bill can stand the test of time and do not undermine innovation and progress in the consumer credit industry. Just as the nature of credit has changed beyond recognition since the introduction of the Consumer Credit Act 1974, it will change just as much in the years to come, especially as new technology provides more and more opportunities to do things differently. Many new ideas are emerging in the field of lending and borrowing at present, such as the work being undertaken by companies such as Zopa, which is using the internet in a manner that totally changes the way in which people borrow and lend money.
These changes could be of great benefit to both lenders and consumers, particularly those on lower incomes, and we have to be certain that excessive regulation does not stifle this type of innovation. The OFT's role must afford flexibility. The vast majority of consumers deal with credit sensibly and they should be granted the choice and freedom to handle their financial affairs how they choose.
Again, the issue stems from a lack of detail and a great deal of uncertainty about the consequences of the proposals in the Bill. Will the Minister ensure that the OFT guidance and publications are made available before the Bill goes into Committee? I simply do not see how otherwise we can fully address the issue of the OFT's extended role.
If the Bill is indeed about increasing transparency, then it should naturally also be about reducing unnecessary red tape. In certain places, however, I fear that it goes against that aim. In particular, the Bill will require lenders to send arrears notices to consumers when, in aggregate, a borrower, particularly one on weekly repaid credit, owes four weeks' worth of repayments. In principle, as the Minister said earlier, that sounds a logical measure, but in practice it may have some absurd implications for home credit borrowers. Some 3 million people borrow on a home credit basis, and on average each customer will miss four payments at certain points, in many cases at staggered points, in the course of a credit agreement. In doing so, however, they will not incur one extra pound of debt, as the repayment formula is designed to be flexible. The Bill could mean that all 3 million customers would have to be issued with formal, written arrears notices, when in reality they would not be in arrears at all. What a terrible waste of time, money and resources that would be. I hope that the Minister will comment on the fact that there could be no better way to frighten people, particular those on low incomes, than to tell them in writing that they are in arrears when they are not.
The final concern that I want to raise at this stage is that of the implementation timetable for the Bill—or rather the current lack of one. The 1974 Act took six years to implement fully, which is indicative of the substantial changes that regulatory measures represent for credit companies. Clearly, these measures are unlikely to take as long to implement, but there are nevertheless serious implications, particularly for IT systems, as a result of some of the proposals, especially those requiring regular information and statements to be sent to debtors.
Without a clearly defined timetable for commencement of the new rules, the credit industry is, at present, unaware of how long it will be given to implement the changes required. The lack of detail in the Bill only makes that worse. Without that detail, companies are unable to assess accurately and reliably what changes they will need to make to their processes and systems and how long they may take to introduce. There is little doubt that a short, unrealistic timetable will not be in the interests of the consumer. As Credit Action states:
"Undue rushes in attempted implementation could lead to corners being cut, staff not being properly re-trained, and thus the purpose of the Bill being somewhat undermined."
In the interests of the consumer, the Minister must give us a clear timetable for the implementation of the Bill, before it reaches the statute book, and ensure that a realistic period is allowed for the industry to adapt.
I have set out why the Bill is so timely and important. The credit industry has changed dramatically over the past 30 years and continues to change at an equally fast pace now. To protect the many millions of consumers who have products and agreements with credit companies, it is essential that a new legislative framework is adopted that offers more rights and means of redress, better regulation of businesses and a fairer and more efficient industry for all.
The Conservative party therefore lends its broad support to the Bill, but, as I have explained, not without reservations. There is insufficient detail, and failure to provide that could have a series of unintended consequences for consumers which could end up doing more damage than good. That would be a perverse outcome for the Bill. No one wants to see that happen, and I look to the Minister and his colleagues to work with us, rather than against us, in Committee—and I welcome his commitment to do that—and beyond, to ensure that we deliver a Bill that truly helps the consumer, without undermining the businesses that provide the service.
I welcome the early reintroduction of the Consumer Credit Bill in this new Parliament. It is a good framework. I add a word of congratulation to my hon. Friend the Minister, who is still with the Bill and has managed to get it before the House. Some of us have put a lot of work into the Bill, which made good progress during the previous Parliament with contributions from Opposition Members. We got a shape and a framework, and we now have a chance to get it right, as the Minister put it, and to improve it.
I agree however with Charles Hendry about the timetable for implementation. We are reforming an Act that was passed in 1974 and we need the Bill to become law quickly, because delays while people wait for stronger regulation condemn thousands of the poorest and most needy in our communities to increasing, crippling debt burdens. We cannot wait for ever to get it perfect; we need some action to give people protection while their debt builds up daily.
In July 1999, the Government first stated their intention to bring the Consumer Credit Act 1974 up to date so that there would be better protection of consumers. With the publication of the White Paper, "Modern Markets: Confident Consumers" in July 2001, the then Minister, Melanie Johnson, announced a public consultation with these words:
"Our credit laws are over thirty years old and need a radical overhaul to protect people in today's credit market. This is a top priority for the government."
It was a top priority in 2001, and the years are starting to tick by. She then stressed:
"Consumers need to know what they are letting themselves in for when they sign up for credit. The expensive catch shouldn't be hidden in microscopic text. It should be explained up front by the lender. We will need to take action to protect vulnerable customers who are preyed on by rogue traders and make sure that consumers get clearer and understandable information so that they know exactly what they are getting into before they sign on the dotted line."
We all assent to that, but we need to get on with it. I make that plea to the Minister. We should not just reintroduce the Bill but get it through Committee—properly scrutinised; I will argue for it to be strengthened—and on to the statute book so that there is some action out there to protect people.
Five years later, we have had widespread consultation and the White Paper, which has all been welcome. A consensus has built up around the Bill, which is why we are where we are today. Yet for the poorest in our society, such as those in Leeds, West, who are forced to borrow for the basics from doorstep money lenders or to go to the cash-converter shop in Armley in my constituency, the situation is worsening as we speak, deliberate and debate. Their debts are compounding and unfair relationships are deepening into increasing and real desperation. That is why we need regulation and good regulation quickly.
I do not want to interrupt the thrust of my right hon. Friend's remarks and I agree that we need to get the legislation on the statute book, but he will acknowledge the Government's work across the piece on financial inclusion, and the regulations that we introduced in October. So it is not a case of waiting for the Bill to come along.
I accept and welcome that. In fact, my hon. Friend underplayed his and the Government's work on funding credit unions and financial advice. I accept that that is all part of the effort to tackle financial exclusion.
I know that the Government feel very strongly about this matter. I am sorry that I missed the introductory statement by my hon. Friend the Minister, but I was elsewhere. One thing that has yet to be addressed is the fact that the very poorest often have additional charges imposed on them as a default, partly because they are unable to protect themselves. Does my right hon. Friend agree that we need to pay attention to that?
I completely agree with my hon. Friend. To be fair to the Minister, in arguments on capping interest rates, that is precisely the problem. What is the point of capping interest rates at 30 per cent. if the APR is 29.9 per cent., but behind the interest rate are charges for default, late payment, not meeting the man with a dog who comes to the door on the right afternoon, and so on? We should look at this issue in the round. I know that the Minister is taking that on board. We could do more in Committee on the detail to get the right shape of Bill so that it gives confidence to good lenders in the industry, drives out the worst and protects the poor.
I want to focus on greater protection for consumers who borrow money, especially the poorest 10 per cent. in Britain who use home credit at some time in their lives. Such people are especially vulnerable to high-cost credit lenders—to interest as well as the extra charges to which my hon. Friend referred. Those without a bank account or a credit card have to turn to lenders at the door or to advertisements for cash on the television or in the newspapers, because they have no alternative way of getting the money that they need. They end up paying most to borrow money—more than the rest of us. They pay the highest price to get the basics for their families.
In the heavy world of economics, we hear of financial shocks coming along, but for a family in the everyday world, that shock could involve the arrival of a new baby. Someone might need a pushchair or a carry-cot or extra provisions. If a relationship breaks down, a young mother might have to set up another home for her children and to buy a sofa, bed, cooker, fridge, curtains and carpets. Those are the financial shocks in the everyday world. A youngster changing school might need a new school uniform and extra clothing. Just a few hundred pounds is a financial shock to people managing on very low incomes.
At first sight and under such pressure, a weekly repayment of £4.99 might look a good deal, but in reality weekly repayments to home loan companies, credit stores and cash-converter businesses involve a huge rack-up of compounding annual percentage interest rates and, as my hon. Friend said, penalty charges which are sometimes hardly noticeable in the small print. Paying back £4.99 over 156 weeks can mean paying £432.38 to borrow the money. A person borrowing £1,000 will pay £700 interest. That is a massive rack-up and we should tackle that. The lending system is locking the poorest into long-term poverty which they cannot break out of.
It is tragic to see in Armley in my constituency people traipsing into the garishly painted Western Union cash converter shop—as if it is out of cowboy land, as it inadvertently and ironically advertises itself—asking for their pension books or child benefit cheques to be held for cash so that they can go across the road to Kwik Save for the goods for the weekend. I am not against people borrowing money, but I want responsible borrowing that balances the budget and I do not want people to be ripped off by being overcharged. We need to address that.
In a special investigative report in last Sunday's edition of The Observer entitled "Living on £3 a Day", there was a detailed account of the Family Welfare Association—a charity that helps people who have no money—dealing with requests for support from applicants who are trying to get by on £3 a day. The chief executive, Helen Dent, commented:
"It is difficult for us to understand what it is like not to be able to replace your children's bedding. There are families who have no capacity to save".
A family cannot save on £3 a day. All that is far from the lifestyle of shopping for fashionable clothes in Harvey Nicks in Leeds, listening to iPods, drinking in chic bars or dining in gastropubs. It is a completely different world. We need regulatory action to give support to people in that world.
I strongly agree with what my right hon. Friend is saying. The poor and the less well off face a major problem, but the problem extends more widely than that. Lenders check whether people are a good credit risk by ascertaining whether there is a record of default. If there is no such record, no regard will be given to the income and the other obligations of the borrower. The Office of Fair Trading has the ability to issue notes on responsible lending. It should have a responsibility also to issue enforceable and abiding guidance on what responsible lending is.
I completely agree with my hon. Friend. As a practical suggestion, we could build into the Bill a responsible lending test. That would put pressure on the industry not to go out and lend.
In November 1999, the Treasury—it was the policy action team—published a report in which it estimated that 1.5 million low-income households had no traditional access to bank accounts. They had no access to what we call regular lending services. Such people are at the mercy of the people on the street and the adverts. In November 2004, the DTI, in its full regulatory impact assessment, in the context of the previous consumer credit Bill, estimated that 9 million customers lacked the credit rating needed to borrow mainstream products from high street lenders. However, all those people are getting credit. What is going on? Why is the market not regulated? There is serious financial exclusion for a huge swathe of the population. These people are forced to live not from day to day but from tomorrow to tomorrow. They do so with fear. They dread getting out of bed the next day. Their debts build up and overwhelm them.
What about responsible lenders? Who is helping those who find themselves in that position? Should not lenders play a part instead of saying, "It's their problem. Let them go to a citizens advice bureau and sort out their debts." No. We need to go down the road that my hon. Friend Mr. Mitchell has suggested. Millions of low-income families rely on credit with high interest rates. Lenders pay scant regard to their ability to pay. The sub-prime market, as it is called, with its huge and excessive default charges, catches out far too many people. There is the pay-day lending system, with interest rates of more than 100 per cent. APR. Door-to-door lenders routinely roll over loan charges for home collection and charge not only interest rates but special charges for a "personal service". The structure locks people into a spiral of increasing indebtedness, and effective regulation is needed.
I agree that most consumer credit businesses treat consumers fairly. I am in favour of credit business as a whole, and most companies comply with their current statutory obligations. However, there are unscrupulous consumer credit businesses that ruthlessly exploit the poor. We should be getting a grip on them. We need to tackle unfairness in any aspect of the consumer credit relationship. That is in the Bill. We need to root out misleading and unfair selling methods, including irresponsible lending. We have gone some way towards that in the Bill. We need transparency in the way in which fees and charges are applied to accounts. We have gone some way in the Bill to getting there. We need to prevent unfair treatment of accounts in arrears. That is somewhere in the Bill. We need a system of effective redress. That is in the Bill. The germs are there but they could be strengthened. The Bill goes much of the way to addressing these issues.
It is proposed to replace extortionate lending with the unfair relationship test. The extortionate lending provision did not work. After 30 years of the previous Act, only 31 cases were brought before the courts to reopen an extortionate credit bargain. Most of those who were in difficulties could not bring their cases to court. They could not get there because the process was too complicated, too expensive and too risky. We should not replace a test and at the same time continue with lack of access to the court. The court might be there, the law might be there, but nobody can make use of the facility to secure protection.
The courts interpreted extortionate lending too narrowly. I understand why my hon. Friend the Member for Great Grimsby is saying, "Don't tie us down there again. Leave it broad." He is saying that that creates space. Between total openness and narrowness must be some space for specifying what the unfair relationship test should be.
My hon. Friend the Minister might say that we should leave the matter to the wisdom of the courts and that we should not tie their hands. There is sense in that. My worry, however, is that poor borrowers in debt do not get anywhere near the courts to sort out their debts. In reality, they are not usually taken to court for non-payment of a debt. Their loans are rolled over into future borrowing and lending. They are told, "You can have another loan to see you over." The spiral of indebtedness increases without the borrower getting near a court.
Borrowers do not want to go to court. They prefer to tie themselves into more debt. Low-income borrowers are not likely to seek court action. They will not receive legal aid. They cannot go before a court to allege unfairness or to try to seek enforcement of their rights as set out in the Bill. They will not see a court as a place that they can use to get redress. It is difficult for them to go before a court. Low-income borrowers may be in court for other matters—for example, not paying other bills. They do not see a court as being on their side. There must be real opportunities to ensure that poor borrowers have effective redress.
The Minister might say that the alternative is to go to the ombudsman. There are two caveats here. There has been good discussion before the introduction of the Bill, and I am not saying that the Bill will not work. However, there is a problem that needs to be ironed out. If the ombudsman has an office in London, and only London, the procedure will not be much use in Leeds and Bradford. People will not traipse down to London to sort out their problems with the ombudsman. The structure must be examined. A more fundamental point is that the ombudsman will wait for court decisions on what is unfair before settling disputes. The courts will be used first. We are still locked into the court being the key in defining the unfair relationship test.
By expanding my hon. Friend's point, I think that the argument will be elucidated. There is a further problem, in that the ombudsman does not rule on price—in other words, on interest rates. That is clearly central to the problem of unfairness. The ombudsman would have to be given powers in that area.
The fairness doctrine improves matters, in that it creates a fear in large organisations that they will be taken to court and that something can be ruled unfair. That is especially important for credit card consumers who often face what I regard as unfair and heavy charges for late payment, or for exceeding a credit limit. Such charges build up. A fear will be instilled in credit companies that they might be taken to court and that they should be cautious.
I share my hon. Friend's concerns. With respect to other right hon. and hon. Members, I am not a lawyer. I fear legislation that we in this place deliver into the hands of lawyers, who live off the face of it for ever. It does not reach the areas where it is needed. I do not want legislation introduced that leads to a row about the role of the court. I want to know how there will be free access so that poor people can arrive at a resolution when they feel that they are being unfairly treated. That is my main aim. My hon. Friend the Minister might care in Committee to spell out the alternative dispute resolution scheme and explain how that can help. We need clarity. I need to be able to tell my constituents, "This is how the system works. This is who you go to to get help and to sort out the so-and-so who comes round and overcharges you."
Speaking as a lawyer, may I ask whether the hon. Gentleman agrees that it is better for Parliament to be setting a framework for how the term "unfairness" is to be interpreted, rather than a court setting precedents?
I understand that the hon. Gentleman is on side, although he is a lawyer. The focus of our discussion must be to ensure that people are clear. The hon. Member for Wealden, who leads for the Opposition, said that businesses need to be clear. My point is that that applies also to the poor. Between us, I think that we have an agreement that can be clarified within the law. I suggest to my hon. Friend the Minister that that work needs to be done.
Those who lend to people without taking account of their ability to pay should be drawn into the same regulatory process as mortgage lenders and court fines. The Lord Chancellor has made it clear that if someone goes to the magistrates court because they have not paid their council tax for whatever reason, the fine, to be effective, must be proportionate to their income or their ability to pay. There is no point in giving someone who owes £135 in council tax a £500 fine, as they do not have the money to pay it. The Lord Chancellor proposed that fines should be proportionate. Why on earth does that not apply to the lenders? A responsible lending test should be built into the Bill, so that the lenders cannot get away with repeatedly lending to people without undertaking an assessment of their ability to pay back the loan. Such tests are included on mortgage forms, so why do we not include them on loan forms, especially as people are sometimes lent more than they are given for their mortgage?
My hon. Friend is quite right. Credit rating is vital in business, and must be in place before one business provides a service to another. It is eminently sensible to apply that test to individuals who are seeking to borrow money.
I agree, as would the majority of lenders in the business. They want to drive the worst lenders out of the marketplace, and would support a programme in which people must provide accurate, up-to-date information about their ability to repay so that repayment judgments can be made before they are lent money. We must then implement a panoply of financial advice, including on budget management. We must make sure that programmes are available in schools and neighbourhoods so that people can learn to manage their budget. Ironically, society is much more willing to discuss sex than debt—it is the great no-no. Part of the problem is that people will not admit how much they are in debt, and are ashamed of their debts.
As the Minister knows, we have had lengthy discussions about unjustifiably high interest rates. I still believe that the Government should serve notice in the Bill that if lenders exceed a market rate they will be penalised. The Minister said that interest rates will be kept under review, but I would like a reserve power to be introduced. If he thought the rate was too high he could draw on that power instead of being in a position where rates might be reviewed by his successors in the next 30 years. I would like to hurry that along, but it is open to debate. The Minister will wish to make his own arguments, so perhaps we should clarify the position at a later stage.
In conclusion, the concept of an unfair credit test must be clarified. We should introduce a responsible lending test for lenders so that the poor are not driven further into debt without protection. There should also be a reserve power to cap interest rates in future. I welcome the Bill, which provides a good framework. Much good work has already been done by Members of all parts of the House, and the Bill has widespread support. We must, however, make some of its definitions clearer. We must make sure that it is not an impotent measure in the background; but most importantly, we must put it on the statute book quickly so that people have redress and protection. Some individuals are enduring unsustainable debts and pay the highest price of all to borrow money for basics for their families. They should not be forced to live in financial misery for a single day longer.
I agree with much of what John Battle said. On the question of timetabling, it is important to put the Bill on to the statute book and to implement it speedily. It took many years to implement parts of the Consumer Credit Act 1974, and implementation this time around must be much quicker so that we can deal with the serious concerns expressed by the hon. Gentleman. He gave a moving account of what it is like to live on a low income, struggling to cope and facing harsh interest charges. I also agree with much of what Charles Hendry said.
I thank the Minister for his kind words of welcome. He must be delighted to be dealing with the issue for a second time, and will have a sense of déjà vu. I congratulate him on making sure that the Bill has been introduced speedily in the House, as it is important that we make progress. I did not participate in debates on the original Bill, but in the last Parliament I was a member of the Treasury Committee, which conducted an inquiry on the credit card industry and practices that have caused genuine concern to pressure groups and the public. When the original Bill was introduced, Mr. McFall, the former Chairman of the Treasury Committee, said on Second Reading that it was scandalous that it had taken so long to introduce draft legislation in Parliament. The Minister is not to blame, because the delay occurred before he took up his portfolio.
It has taken far too long to introduce new legislation. The 1974 Act is more than 30 years old, and since its introduction there has been a revolution in the availability of credit and the range of credit products. As the hon. Member for Wealden pointed out, there has been a dramatic growth in the number of credit cards that are available. There was one in 1971, but more than 1,300 today. Borrowing on credit cards has gone through the roof. The legislation is therefore no longer fit for purpose. The new measure is long overdue and it is good that it is before Parliament today. Because the 1974 Act is no longer fit for purpose, consumers, including the most vulnerable, have been left unprotected, which is unacceptable. Today's press report that RBS NatWest has experienced an increase in arrears, following similar warnings by Barclays, HBOS and HSBC, is a timely reminder of what happens when interest rates go up. It is always the most vulnerable who are hit first. The market is not operating properly and that must change.
Before applying our minds to the legislation, we should state the principles that we will follow. The availability of credit is a good thing. We all need credit from time to time, and some people always need it. Different people need it to a different extent and for various periods of time. We must, however, avoid the paternalistic temptation to prevent people on low incomes from gaining access to credit, as they need it as much as the rest of us. We must ensure that lending is responsible so that those people do not get into difficulties.
I have made this point before, but I should like to reinforce it. We could provide genuine access to credit by ensuring that credit unions can be accessed through the postal network. Some hon. Members have tried to persuade local post office branches of that case, but there would be a dramatic improvement in lending practices if such access were available more widely. Does the hon. Gentleman agree?
Yes. The network is under enormous pressure and there are signs that it is dying, so it should be a priority to find new uses for it. I very much support the work of credit unions and it would be a very good thing to use the post office network in that way.
We need a competitive market, but that can be achieved only if consumers are informed, which depends on transparency and clarity of information, as well as the absence of misleading marketing and promotions. Indeed, the 2003 White Paper was entitled "Fair, Clear and Competitive". There must also be adequate protection for consumers and the means for them to seek redress. We all accept that personal responsibility is important, but the industry also has a duty to behave responsibly, particularly towards vulnerable consumers, including people on low incomes, people with mental health problems and young people. As the father of a 17-year-old son, I am acutely aware of the importance of responsible lending to young people.
The industry has had to face up to quite a challenge. It can be easy to tar everyone with the same brush, but I think that parts of the industry have behaved irresponsibly and unacceptably. That does not apply only to the backstreet lenders; there are names on the high street that have behaved improperly and got people into a lot of difficulty, leading to some tragic cases, including suicides. There is culpability among the high street names as well as the backstreet ones. The Select Committee on the Treasury should have some credit for initiating a debate on some of those unacceptable practices. During the inquiry, Barclays bank had to withdraw a promotion, under pressure from the Office of Fair Trading, because it was misleading.
There has been a response and progress has been made. The introduction of summary boxes giving clear information is one way in which the industry has responded. It has moved some way, although not far enough, in my view, towards providing clear information so that the consumer has the information that is necessary to make an informed judgment. Some of the worst excesses are therefore now in the past, but there is still a long way to go and key concerns remain. We need to consider how, if at all, the Bill addresses those concerns.
First, there has been a failure to achieve adequate data sharing, and reform is essential. We have not got there yet and I am not convinced that the Bill does anything effective to address the problem. I shall be interested to hear the Minister explain precisely how he envisages we can crack the problem. Difficulties arise when people go to a number of different lenders and borrow—they may well be making the minimum monthly payments—so that the total amount never shows up as a default, but cumulatively gather a debt that is completely unsustainable, after which everything crashes. It is incredible that that can continue.
Many financial institutions accept that data sharing must come and that it must be complete, but some institutions are still resisting it. On this issue, as on some others, the Minister could use the Bill and the threat of possible amendment to force the hand of some of the companies involved and persuade them to move further than they have done so far. I urge him to consider that. There has been a long debate about the problem of data sharing, and it is time for some action.
Which? has suggested a possible solution and I would be interested to hear the Minister's comments. It suggests that the credit agreement should contain the ability for the consumer to consent to the sharing of information, with some key caveats. First, there should be clarity about the information to which consent to disclosure applies. Secondly, the sharing of information should be limited to organisations recognised by the Information Commissioner as credit reference agencies. Thirdly, the data should be used only for assessing credit worthiness. This is not rocket science, but getting from the industry a voluntary commitment to introduce such a requirement in all agreements would go a long way towards sorting out the problem. I shall be interested to see whether Minister wishes to take the proposal forward. We can take action through either regulation or voluntary agreement. My preference is always for voluntary agreement, if it can be achieved.
The second specific concern that remains—I raised it in an intervention on the Minister—is the fact that although there is new regulation on the single method of calculating annual percentage rates, there are still about 10 different ways in which credit card companies calculate interest, depending on when the interest rate starts to run. The inevitable consequence is that a single APR achieves nothing in terms of greater transparency if the consumer cannot make a proper comparison between one card and another. The industry resists any uniform approach to calculating interest, often on the grounds that it would cramp its style or restrict innovation and so on. I am not wholly convinced, but there is another way in which the problem of lack of clarity and the ability to compare one product with another can be dealt with: showing the cost of credit using a common scenario or illustration in respect of all credit cards. The information could be shown in pounds and pence so that the consumer can see the cost of credit in cash terms and not in percentage terms, which many of them do not understand.
I pursued that concept all the way through the Treasury Select Committee inquiry. Initially, there was no interest at all, but by the end of our inquiry, John Vickers from the Office of Fair Trading had indicated support, as well as a number of consumer organisations. A number of credit card companies have not only indicated support, but have been trialling the idea of illustrations in pounds and pence. If there were voluntary agreement across all credit card companies to have a single set of illustrations, the problem of having one single interest rate calculation could be overcome, as people could see the cost of borrowing on different credit cards. I know that the Minister has said that the Government are monitoring the issue and that the Association for Payment Clearing Services is trying to introduce some uniformity to illustrations. What can he do to push the industry in the right direction, so as to create genuine transparency in the cost of credit?
Other issues remain unresolved. The Daily Mail referred this morning to a problem that cannot be addressed by regulation, but to which the industry must face up. Staff are often incentivised to sell more credit and they get extra money for flogging more, whether or not that is appropriate. It is inappropriate, especially in respect of more vulnerable consumers.
On credit card cheques, I know that a new opt-out protection has been introduced by way of the banking code. I was told in a letter from one of the Minister's officials that the Government plan to consult on the commitment that the Minister gave, during consideration of the Bill before the general election, to introduce secondary legislation on transparency of terms and conditions regarding credit card cheques. What is the time scale? Is he planning to consult now or will he take many months to get around to it? There is a serious problem with consumers not understanding the consequences of using the cheques.
The next problem that remains is minimum repayments. There are new warnings and some credit card companies are now giving illustrations of the cost of making minimum repayments, but the dangers remain. If the repayments are set too low, the debt that the consumer faces continues to grow. That is another problem that the industry must pursue further.
Penalty charges have been the subject of inquiry first by the Office of Fair Trading and now by the Competition Commission, and we may get somewhere. When the right hon. Member for Leeds, West and others talk about the problem of high interest rates, however, we must remember that it is often penalty charges that get people into difficulties. Because I did not pay off my Halifax account in time, four cheques went through, each of one of which carried a £30 charge. Such charges may prove to be punitive for people who are struggling on low incomes and that matter must be addressed, perhaps through the banking code.
We have already discussed the problem of the order of payment on credit cards. Some consumers do not understand that they are paying off the 0 per cent. debt that they have carried over from another credit card rather than subsequent purchases, which are subject to a rate of interest.
The payment protection insurance sector is making super profits. Again, because staff are too often incentivised, protection insurance is sold to people who are unlikely to be able to use it, and it would be good if the industry were to respond to that point.
The Bill does not specifically deal with any of those issues. I always prefer to see voluntary action by the industry and the banking code is the ideal mechanism for achieving that. If the industry does not take adequate action, however, the threat of regulation may be necessary.
How does the Bill measure up to the principles that I set out earlier? The Minister has stated that it will not catch all the issues, and I accept that point. It is fair to point out what has already happened by way of statutory instrument. In October last year, new rules were introduced on advertising consumer credit, including the APR issue, and on the prominence of key information on the cost of credit. In terms of transparency, however, the single APR is useless if interest is calculated in several different ways. New rules on the disclosure of information before consumers sign an agreement have also been introduced by statutory instrument. Consumers have the right to take the agreement away and study it, which is a welcome reform. New, fairer rules on early settlement have also been introduced, and those steps are all positive.
Turning to consumer rights, the Bill does not include measures on capped or maximum interest rates. The "Debt on our doorstep" campaign and some hon. Members who are present in the Chamber today have argued for a cap on interest rates, but the evidence that I have seen from other jurisdictions across Europe and America suggests that it would not achieve its objective. If a measure does not protect the most vulnerable people, what is the point of introducing it? The evidence shows that a cap would not protect the most vulnerable consumers.
I am referring to a study commissioned by the DTI, to which the right hon. Gentleman may object. [Interruption.] From a sedentary position, the Minister says, "He does." It is interesting that Which?, Citizens Advice and the National Consumer Council, which have considerable experience—far more than me—in the field, do not support a cap on interest rates. We should take careful note of what those organisations say.
Other factors such as high charges, which I have mentioned, and the extension of credit beyond what is sustainable, can be as pernicious as high interest rates.
I accept the importance of those factors. Interest rates are capped in Germany, France, Holland and 14 American states. Where is his evidence that those caps do not work? I am not sure whether his statement is true. [Interruption.]
Does the hon. Gentleman think that the Church of England and the Local Government Association, both of which support the idea, are completely wrong?
I disagree with those bodies on this particular point, but I take note of their opinions. I do not know whether hon. Members can adduce different evidence, but the worst cases in which people commit suicide or experience a crisis such as a mental breakdown involve people taking on 16 different credit cards and personal loans while the data sharing system fails to catch the fact that debt is accumulating. The interest rates involved in such cases are often far below those offered by doorstep lenders, yet the cumulative effect of all that debt, together with charges and the extension of credit limits, produces the greatest tragedies. If the right hon. Member for Leeds, West can point to competing evidence, I would be interested to hear about it.
It costs £700 to borrow £1,000 from a doorstep lender, which is so far over the odds that it is immoral and should be capped. I agree that the high profile cases involve different borrowers. APRs of 39 per cent. and 49 per cent. have been mentioned as great scandals; I deal with people who pay more than 1,000 per cent. APR. We should get a grip on the situation and, at the very least, serve notice to companies that they will be fined if they charge such interest rates.
I am grateful to the right hon. Gentleman for that intervention. I would never support such interest rates, but the question is whether we should make them illegal. If people are pushed out of the market, DTI research suggests that they will drift into borrowing from criminals, who are self-evidently totally unregulated. We can continue this debate in Committee.
I am grateful to the hon. Gentleman for giving way and apologise to the Minister for missing his speech, although I served in Committee on the previous Bill, so I have probably heard most of his arguments.
I do not usually try to help Liberal Democrat spokesmen, but I will do so on this occasion because we should not go down the road of capping interest rates. The Bill does not state what constitutes "unfairness". In section 138(2)(a) of the 1974 Act, one of the things that constituted "extortionate" was a comparison of interest rates prevailing at the time that an agreement is made. We are withdrawing the specification and qualification of what "extortionate" means and are leaping towards "unfairness", which is probably a better test, but the fact that we are not defining "unfairness" is the kernel of the argument. The answer is not capping interest rates, but detailing what "unfairness" means.
I am grateful to the hon. Gentleman for that intervention. The unfairness test, perhaps combined with guidance, on which the right hon. Member for Leeds, West and I agree, might make the interest rates to which he has referred unlawful and challengeable under the new unfairness test. Again, I call on the Government to provide clearer guidance.
The unfair relationship provision repeals the old test of extortionate credit, under which only 10 successful prosecutions occurred. Although I accept that its influence goes beyond what might be suggested by having only 10 successful cases, it has clearly been inadequate in terms of providing protection, and most people accept that. It is right to raise concerns, as did the hon. Member for Wealden, about whether, without a further framework or guidance, it will be compatible with the human rights legislation. It is a vague test, inevitably, as there is a lack of a clear framework for applying it, and that, combined with the presumption that the relationship is deemed unfair until the contrary is proved, makes it potentially onerous.
Also in respect of the human rights provisions, there are concerns about the powers of licensing and the sanctions given to the OFT. Again, the powers are very wide and unfettered—for example, the power to impose requirements on licence holders. The Joint Committee on Human Rights has expressed the concern that the
"entirely unfettered scope of this power" may pose
"a significant risk of incompatibility" with human rights legislation.
I suggest that the Bill should set out the clear regulatory objectives that the OFT should apply in exercising its discretion. Although that proposal was put to me by the Consumer Credit Association, it seems to me that clarity is entirely in the interests of consumers, as well as of the industry.
Subject to those concerns, I support the change in the test. It is right to be able to survey the whole relationship to determine fairness, considering all the relevant circumstances, including the terms of the agreement and, crucially, the conduct of the parties. An agreement that on the face of it can look entirely reasonable may, in fact, be entirely unreasonable if it has been forced on a consumer in entirely inappropriate circumstances.
With regard to the enforcement powers of the OFT, and subject to the concern that I have expressed about the human rights legislation, we support wider, more flexible powers below the nuclear option of licence withdrawal. I note that the maximum fine of £50,000 can be changed by way of statutory instrument. It is sensible to provide such flexibility.
We support measures to make it easier for consumers to pursue a complaint. The alternative dispute resolution scheme using the financial ombudsman service is an appropriate reform. I take on board the concerns of the hon. Member for Wealden about the capacity of the financial ombudsman service to cope, but that could be addressed and resolved—it is not a reason for not doing it. The alternative dispute resolution route is clearly preferable to consumers simply being left to expensive court action, and is a significant advance in consumer protection.
The Bill seeks to improve the regulation of consumer credit businesses. It broadens the fitness test to assess the competence of the business to provide credit. That is a sensible reform, as is the introduction of indefinite licences, which should lift the burden on responsible lenders so that greater focus can be applied to rogue lenders.
There are several other reforms, including annual statements and arrears notices. Like the hon. Member for Wealden, I suspect that it may be inappropriate to require the lender to serve a notice when the situation is being managed perfectly well between it and the borrower—for example, where there is an agreement whereby although the consumer has failed to pay for a certain number of weeks, the level of debt will not be increased by rising interest rates.
In principle, however, the reforms are sensible. There will inevitably be a number of specific issues that we will debate fully in Committee, but the thrust of these reforms is good. The Bill, although overdue, is certainly worth supporting. I hope that it will lead to a change of culture in those parts of the industry where practices have been unacceptable. As I have tried to indicate, the industry still has a big responsibility to go further in all those areas that are not directly covered by the Bill. However, I guess that the objective of us all is to achieve a transparent and competitive market where businesses can be successful but the industry works in the interests of the consumer.
As we have heard this afternoon, it is an absolute tragedy that in modern-day society we continue to hear stories of people taking their own lives because of their debt problems. It is therefore warmly to be welcomed that we have this Bill back with us today. I suspect that other hon. Members who were here during the debate on the previous Bill, which received broad support across the House, will be equally relieved that it has returned after it fell on Dissolution. As this Bill is almost identical, I hope that there will be a reasonable degree of unanimity, although I already sense that there are still slight disagreements on some aspects of it.
No one in the Chamber can fail to remember the Meadows case in Liverpool; in fact, the Minister referred to it earlier, keeping in mind that an appeal will be held on Monday. What was the real problem in that case? Was it the fact that an original debt of £5,000 rose to £385,000, or the fact that it took all of 14 years to go through the whole court process? Whatever is the case, there is no doubt that the introduction of the compulsory alternative dispute resolution scheme will improve consumer rights and offer greater protection.
For too long, consumers have been exposed to extortionate rates of interest. In general, the vast majority of people who find themselves in a financial plight have more than one debt. Only a couple of weeks ago, I had the unfortunate experience of meeting a constituent who was struggling with debt that had arisen from a credit card. She was a woman in her early 50s trying to cope with two or three different financial problems at the same time, one of them being a mortgage repayment. She is tied into a mortgage endowment that will, she told me, terminate in four or five years' time, but there appears to be a significant shortfall in its maturity figure. She knows full well that she will have to cope with that fairly major problem in four or five years' time. However, the credit card debt was starting to get out of control. For several months, she had been making payments faithfully and had never defaulted, but only 20 per cent. of what she paid was diminishing the balance that she owed. Some 80 per cent. was therefore being paid back in interest. Under normal circumstances, people would think that credit cards were fairly sound and reasonable but we have heard about negative experiences today.
The lady was reaching breaking point and she said to me, "If I continue in this vein, I will be in my mid 80s before I get this repaid." She was struggling. Thankfully, I was able to encourage her to go to the bank and speak to people about the debt, and the good news is that she now sees some light at the end of the tunnel.
We are constantly advised to save for our retirement and prepare for our later years but consumers never appear to be advised about the concept of saving. Perhaps I came from a different stable several years ago. Today's consumer is vastly different from those of 20 or 30 years ago. There have always been people who could afford anything they wanted. There were also those who saved to buy a specific item or endeavoured to make a purchase in a short-term, interest-free period. However, nowadays, we never hear of people saving to purchase products for the home or anything that might be deemed a luxury item. Indeed, what is a luxury item today? We live in a different society and people no longer save.
My right hon. Friend John Battle said that people were ashamed of debt. Although I believe that that is true of some people, it worries me when we hear of others who almost boast about it. There has been a change in attitude in 20 or 30 years. Debt used to be a stigma for most people. Nowadays, that applies to fewer people. That is apparent even in game shows. "Who Wants to Be a Millionaire?" captures my imagination from time to time. The bold Chris Tarrant asks contestants, "And how much would you like to win?" to which people explain their reasons for how much they want to win. Often, one of the reasons for wanting to win a specific amount is to pay off debt, including credit card debt. I therefore stress to my right hon. Friend the Member for Leeds, West that some people almost boast about it. We live in a different society nowadays.
I was trying to make the point that people do not find it easy to talk about their financial arrangements. For the poorest, it is not only a question of shame. Most people will not discuss how they balance their budgets and on what they spend their money. Even those who boast about how much borrowing they have done might not spell out their whole budget. We need, perhaps as part of youngsters' education, to teach them to think and talk more about how to balance budgets and manage income. We are all bad at being open about it, even to our partners.
My right hon. Friend is right. Something needs to be done through education, especially for our young people. Norman Lamb, who spoke for the Liberal Democrats, mentioned his 17-year-old son. I have two daughters who are slightly older and it makes me somewhat anxious to hear them talking about their credit cards. I avoid asking questions in case I do not get the answer that I want to hear. It is all about being careful.
Despite the Government's valiant efforts to make our society more inclusive, some people still find it difficult even to open a bank account. Their financial circumstances are such that the banks do not want to know. Sometimes, perhaps because of where they live, there is no credit union. I applaud colleagues' comments about the value of credit unions in many communities. Many people who fall into the category of being unable to join a credit union or have a bank account never seem to have much of a problem with securing debt. Contributions in the Chamber this afternoon make that abundantly clear. All too often, those people get into the hands of loan sharks or companies that have no conscience about a consumer's becoming seriously indebted.
In the past financial year, Dumfries and Galloway citizens advice services dealt with 905 clients with debts that totalled just over £11 million. In April alone, they dealt with 42 new clients with debts that totalled £401,430. They are currently dealing with 461 cases with debts that total just under £5.5 million. To some right hon. and hon. Members, those sums might seem very small in the grand scheme of things, but in reality, they are becoming increasingly worrying in an area that suffers badly from a low-wage economy. I want to put on record my thanks to Dumfries and Galloway citizens advice service and the local welfare rights staff who work so diligently to assist my constituents with their financial problems.
The Government's White Paper highlighted the fact that escalating consumer debt can be traced back to the lack of ongoing information on credit agreements being provided by lenders. This is of particular concern to consumers who fall into arrears, as they are often unaware of the consequent charges on their account, such as default costs for missed payments, compound interest being charged on the amount owed, or underpayment on the accumulation of their debt. These are specific problems. We have heard this afternoon about interest rates, but sometimes they are not the problem. Sometimes the problem is the default payments that have to be made, and many consumers tend to bury their heads in the sand in such circumstances.
Although the Consumer Credit Act 1974 places some duties on the lender to provide information, they apply only when the consumer makes a request for it. I am delighted that the new Bill will require the lender to provide annual statements at no cost to the borrower, and that those statements will have to provide specific information to help the borrower. The aim will be to ensure that the borrower is kept fully informed of the status of their account throughout the entire life of the agreement. I also welcome clause 6, which requires businesses to issue annual statements for all regulated fixed-sum credit agreements with a term of more than 12 months.
This debate has thrown up some important issues that have not been dealt with by the Bill. We have heard demands for interest rate capping, and the issue of unsolicited credit card cheques has also been raised. Changes relating to APR calculations were introduced in October 2004—I compliment my hon. Friend the Minister on the part that he played in their introduction—but there are still big questions to be answered on that issue.
Responsible lending is important, and we must be critical of those lenders who exploit consumers, but, as my right hon. Friend the Member for Leeds, West said, we must also consider the issue of education, because responsible lending goes hand in hand with responsible borrowing. This is about the exploitation of the poor, but the whole issue of irresponsibility regrettably involves wider society as well, and if left unchecked it can attack communities and neighbourhoods of all different social backgrounds. I applaud the Minister for bringing this Bill back so quickly, and I echo the plea that we should not only place it on the statute book but ensure that it is implemented as soon as possible.
Thank you, Mr. Deputy Speaker. "Do well, doubt not" is advice that any maiden speaker in the Chamber should take to heart. It is also the motto of the borough of Tunbridge Wells, the major part of which I have the great honour to represent here. Tunbridge Wells is a strong community, and I feel fortunate to be able to represent it. My constituency comprises not only the historic spa town of Royal Tunbridge Wells. It includes Southborough and High Broom, which is even older, and was home to the first Jewish Member of the House. It also contains Paddock Wood, which started off as a small agricultural settlement and has grown into a lively town in its own right.
My constituency also contains some of the most beautiful villages in the whole of England, from Groombridge and Speldhurst in the west, right across to Lamberhurst and Goudhurst in the east. Those beautiful villages in the heart of the high weald countryside are the source of great pride to visitors and residents alike.
Next year is particularly auspicious for Tunbridge Wells, as it is the 400th anniversary of the discovery by Lord North of the Chalybeate spring, which marked the foundation of the town. Lord North's physician opined that the waters of Tunbridge Wells could cure "the colic, the melancholy and the vapours, that they could make the lean fat and the fat lean". For any politician, a place that can cure the melancholy, the colic and the vapours is surely a very good place to choose to live, and I am pleased to do so.
The quality of life in my constituency is among the best of Britain. One of the jewels in the crown of my constituency will be at the heart of those celebrations of our 400th anniversary—the Pantiles. For Members who do not know it, the Pantiles is the Georgian colonnade par excellence. It contains shops, restaurants, cafes and bars, all of them independently owned and run. In a context in which the high streets and town centres of Britain are accused of being clones of each other, the Pantiles and the High street in Tunbridge Wells are the stunning exception to that rule, and I invite Members to visit if they have not done so previously. I shall do everything that I can to promote such pieces of our national heritage, which is very important.
Our quality of life extends beyond the Pantiles, and is prized particularly in our residential communities and villages. That is not to say, however, that we do not have our problems. Because our quality of life is so high, my constituents are rightly concerned to keep it that way. The rise in antisocial behaviour, graffiti, vandalism and car crime troubles my constituents, and I have pledged to them to work hard with the local council and police to take a tough line for the good of all people in my constituency.
In many senses, the worst thing about Tunbridge Wells is leaving it. I say that because the roads in our area are abysmal. I will press Ministers to turn their attention to that, and particularly to the A21 and the much-needed bypass at Colts hill, which is a notorious accident blackspot. The Kent Messenger has been running a strong campaign to get that bypass funded. Those are crucial developments, and I hope to ask Ministers to support my campaign for such improvements.
Although the springs of Tunbridge Wells are famously efficacious, we do need first-class hospitals in my constituency. A new one is about to be built at Pembury, and my concern is that the poor state of the roads, and the glacial progress towards dualling the A21, as my hon. Friend Charles Hendry knows, might impact on the opening time of that new hospital. I am particularly concerned about the decision to refer that upgrade to the South East England regional assembly. I hope that Ministers will reassure me that that does not presage a permanent delay in that project.
Many people make the mistake of assuming that Tunbridge Wells is uniformly and universally affluent. That is not the case. We have areas of deprivation in my constituency that are the equal of many other parts of the country that are more associated with deprivation. Our problem is that because our average level of income is so high, we often do not get the specialist help and support that we need, and I am concerned that my constituents who most need help lose out in that respect.
That is one of the reasons that I was keen to catch your eye today, Mr. Deputy Speaker, as I know from my experience during the election campaign of the impact of worrying levels of debt in my constituency. I remember distinctly canvassing in an area called Showfields in Tunbridge Wells, and as I knocked door to door, a debt collector followed me almost house for house. I do not know whose visit was the more unwelcome, although we were certainly keeping pace with each other. I am concerned that we should take care of our vulnerable communities, even those in a relatively affluent area such as Tunbridge Wells.
I have known Archie Norman for some years as the most candid man I have met in politics. I first encountered Archie when I was appointed director of policy for the Conservative party. I sent him a piece of work for approval, and he sent back an e-mail consisting of three words: "Hopeless, start again". But I can take that advice from Archie Norman, because I know that he has a clear mind and rigorous judgment, and is someone who always speaks the truth. I hope that my party will have occasion to take his advice in the months and years to come, as I certainly hope to do personally.
Anyone who has worked with Archie will know that he is kind and generous, and enjoys a great deal of affection as well as respect. That respect is very palpable in my constituency. Canvassing in Tunbridge Wells makes it very clear that Archie—as he is universally known there—has a reputation for being a particularly effective constituency MP. The bypass that has just opened at Lamberhurst could well be named the Archie Norman memorial bypass, and the hospital at Pembury also has a great deal to do with his ministrations.
The other former Member of this House to whom I want to pay particular tribute is Lord Mayhew, perhaps better known to hon. Members as Sir Patrick Mayhew. Lord Mayhew still lives in my constituency, and continues his community service to this day. At every flower show I attend, it seems, Patrick Mayhew is presenting the prizes. When the Royal British Legion march, Patrick Mayhew will be leading the procession. If I go to a fundraiser for the excellent local hospice, I can be certain that Patrick Mayhew will be leading the charge. I am always absolutely delighted to see him. If when I turn up at such events—as I hope I will for many years to come—I am greeted with the same delight as that with which my constituents greet him, I shall consider myself to have done my job very well in this place.
Lord Mayhew also had a high reputation in this place, and will keep it, as the man responsible for beginning the process that led to relative, if sadly not absolute, peace in Northern Ireland. In so doing he conducted himself with great dignity, and occasioned great disruption to his life and that of his family as a result of the security threats that that entailed; but he took it with characteristic good grace and humour. I have heard it said that he once thanked his bodyguards most sincerely for being prepared to give up their lives to protect his. One of the guards who was pretty sanguine about his responsibilities responded immediately: "Oh no sir, we are here to get the one who gets you." I am very privileged to have Patrick Mayhew and his wife Jean as my constituents. They are loved and respected in Tunbridge Wells, and I know that that will continue for many years to come.
Three weeks ago in the Chamber, we heard an excellent response to the Queen's Speech from Vera Baird. In that speech, she described her motivation for entering politics. She said, in particular, that she wanted to help children from the old steel town of South Bank in her constituency to take up the opportunities available to them. She was not to know at the time that sitting in the Chamber for the first time was a product of South Bank. South Bank is the town where I went to comprehensive school, and where my father, like his father before him, was the local milkman. I am keen to associate myself with the sentiments that she expressed. It goes to show that a commitment to come into politics and help in the work to give opportunities to everyone in our society is not the preserve of one political party, but an ambition in the House generally, as I think our presence on both sides of it demonstrates. I am grateful to be in the same House as the hon. and learned Lady.
The key to improving the life chances of people in my constituency, in South Bank and indeed throughout the country is maintaining strong communities. Tunbridge Wells and the surrounding villages is a set of strong communities, and I am very grateful and honoured to be chosen to be their voice. Voluntary groups, in profusion throughout the constituency, are doing fantastic work, and parish councils are working tirelessly for the good of their villagers. Our local newspaper, the Kent and Sussex Courier, has been awarded this year the national community newspaper of the year award, reflecting its place at the heart of our community.
It is important that we build up the trust that we place in our local communities. On issues such as planning, we do not trust our local people enough. I want to use my time in this House to transfer some powers away from it—and, indeed, away from Ministers—and to local people in my constituency and others.
You will probably have discerned from my remarks, Mr. Deputy Speaker, that I have fallen in love with Tunbridge Wells and its people. It is very easy to succumb to that. There is an old saying that "Travel broadens the mind", but whenever I do travel these days I have cause to call to mind the final line from that great film "Lawrence of Arabia": "On the whole, I wish I'd stayed in Tunbridge Wells."
I begin by congratulating Greg Clark on the competence of his maiden speech. He is of course very nearly my neighbour, joined as we are not at the hip but by the A21; he can be assured that I will join him in pursuing such issues. Given the competence of his performance today, no one in this place would say, "Hopeless—start again." He is to be greatly congratulated, as indeed is his predecessor, who worked so hard to improve the highways in that area.
The constituents of Tunbridge Wells will certainly be disgusted by some of the developments in consumer credit in recent years. I doubt whether the Wilson Government of the 1970s expected the Consumer Credit Act 1974 to be "fit for purpose" for more than 30 years. The truth is that it has not been so for some time, and there are perhaps two reasons why, the first of which is social attitudes to debt itself and expectations. In the intervening years, we have witnessed the creation of the "me, now" society, from which I fear we have not recovered. Such a society sets store by the acquisition of consumer goods that were once regarded as luxuries, but which many now regard as necessities.
However, I am also conscious of the real demands placed on families on low incomes, who feel the need to "keep up with the Joneses" by buying the latest designer trainers or the latest fad in football shirts, thanks to the pressure put on them by their children. I know that these things happen, because my children tell me that their own children sometimes place such demands on them. I say this not by way of criticism but in acknowledgement of the pressures that do exist, to which easy credit is often seen as the answer.
So this Bill is an important social tool to protect some of the most vulnerable in our society from exploitation by those who have the means to fulfil their desires. There can be few situations in which the parties to a bargain can be as unequal as in the provision of credit. Of course, for most, credit—such as borrowing on a mortgage or borrowing for a new car—is a perfectly reasonable way of acquiring an asset. Those who are economically literate, who surely include most Members, are capable of distinguishing between an offer through the post of two free flights to Europe—involving a loan at 30 per cent. APR—and the offer from a high street bank of a loan at 1 per cent. above the Bank rate. Many, however, do not possess such economic literacy, and I shall return to that issue in due course.
It is therefore my view that, although the Bill is important, it needs to be more precise about whom and how it is intended to help. Indeed, as was mentioned earlier, the concept in the Unfair Contract Terms Act 1977, whereby those who decide whether a contract is unfair take account of the relative bargaining positions of the parties, should be the starting point in determining unfair relationships. When someone with an income of £100,000 wants to buy a Mercedes, that is a matter for the market; but it is a different matter when someone with three children needs to buy some Christmas gifts. It is also a different matter because one will pay 6 per cent. and the other will pay 50 per cent. That must be wrong, too.
I should like the Bill to tackle the concern in at least two ways: first, as I say, by taking into account the respective bargaining positions of the parties when determining what is and what is not fair; and, secondly, by imposing an obligation on the lender not to lend where the repayments are unaffordable given the borrower's circumstances when the loan is made.
I am not suggesting that the lender should be responsible for subsequent difficulties that may arise, but it is my view that many lenders—this applies to the provision of store cards, in particular, and to certain doorstep operators—take no account whatsoever of the ability to pay. Indeed, it would be entirely possible, by regulation, to set a test for that ability—perhaps along the lines of requiring that a residue disposable income of, say, two thirds of the social security rate must be available for living after accounting for the maximum repayments under a contract, or something of that nature. In particular, such an arrangement should apply to store and credit cards, where vast credit limits are often set that, if used to their limits, can sometimes place debtors in an impossible situation.
Charles Hendry mentioned that he was offered additional credit irrespective of his means. I was pleased to receive, although did not accept, an offer of significant additional credit earlier this year, just before the election, when my Tory opponents were telling me that I had no chance of future employment. They were wrong, but the credit card company could have been wrong, too. Such offers are, indeed, nonsense.
My solution would be that, where excessive credit is granted in such circumstances, the debt should not be recoverable. The system should be as pressured as that for the lender. In short, when recovering debt, the creditor should be able to show that an assessment was made of the debtor's ability to repay at the time of the granting of the credit.
For many of those of us who may be lawyers, the discussion of consumer credit is of academic interest; but, for some, it is an issue of life itself. I should like to tell the House a little about a debt survey that was carried out in my constituency just last year by Peter Ambrose and Liz Cunningham of the university of Brighton, which serves to show just why the Bill is necessary.
The study, entitled "The Ever Increasing Circle", was published in November last year and commissioned by a charity known as the Tomorrows People Trust, with the help of GOSE—the Government office for the south-east—Hastings borough council and the Greater Hollington Partnership. Those working for the Tomorrows People Trust had noted in their efforts to move the unemployed into employment that around 30 per cent. of people were reluctant even to try to do so because they said that they could not afford to go to work. So the survey was commissioned to look at groups in both Hastings and Brighton to discover whether that perception was well founded.
Sadly, the situation was even worse than those involved had believed. The survey showed that a staggering 38 per cent. of people found that debt was the main barrier to seeking employment. It was recognised that the welfare-to-work strategy in which the Government have created initiatives—such as the job grant, housing and council tax benefit run-on and adviser discretion grants—was helpful in assisting the long-term unemployed. Yet all that was not enough for many people to deal with and overcome debt as an impediment to seeking employment.
Of course, it was not only the barrier to work that was a problem when debt became unmanageable. Indeed, health—particularly mental health—family breakdown and exclusion from community activity were all part and parcel of the dilemma. However, for a significant minority—38 per cent.—debt was their major barrier.
The respondents were then asked why. Some said it was the amount of emotional energy, not just the cash, that the issue took that made it difficult for them to concentrate on finding work. They said things such as:
"I think it stops me looking for work—it's always on my mind, especially with all these court things. If I get a job, then they're going to take it out of my wages and things like that. I can't really afford for that to happen if I've got to pay housing and council tax and look after my son. It's quite scary."
Another woman said:
"It's a no win situation. If you get back into work then you fall into a less helped category and take on more responsibility and it's this big support thing of going back to work, sorting things out."
As people try to sort out their debts, the creditors come after them. Many others told similar stories of their concern that creditors hold back when there is nothing to touch but, once the debtor is in work, the creditors move in. The objective is surely to avoid, wherever possible, that downward spiral into despair. It is not simply the individual who loses out by this impossible credit obligation that they take on, but society too—be it through the NHS or the continuance of the unemployed.
Surely we are seeking to give particular protection to those in the lowest-income bracket. A social exclusion report of April 2004 provided further evidence of the differential impact of debt when it noted that those on incomes of less than £11,500 owed on average about 35 per cent. of their annual income in debt whereas for, higher income groups, only 10 to 20 per cent. of their income was committed. Indeed, all those on incomes of less than £7,500 had serious debt problems.
I mentioned earlier that it was my belief that many individuals fail to manage credit because of financial illiteracy. Many households are still incapable of managing a household budget. Many see the solution to managing their budgets by filling the gap in the short term by borrowing. We all, of course, know of the day of reckoning that will come, with the often tragic circumstances that arise. We cannot protect everyone from themselves. This is not a nanny state, and neither should it be. However, in a society that cares, we must ensure that people are not unfairly treated and that their relative bargaining position is recognised and, where possible, that we educate, perhaps even through the national curriculum, to ensure a degree of economic literacy.
I now wish to look briefly at some provisions of the new Bill and how they appear to improve on the earlier legislation. As has been said, the extortionate credit provisions of the Consumer Credit Act 1974 do not work as consumers are either unable or unwilling to challenge extortionate conduct by lenders or, in any event, lack the will or ability to do so. My hope is that the new provisions against unfair relationships as set out in clauses 19 to 22 will offer a solution. In particular, clause 19 inserts the new "unfair relationship test" but it is important that there is even clearer direction as to what an unfair relationship consists of.
I appreciate that the provisions of the Bill are to ensure that the court pays regard not only to the terms of the agreement, but to the way in which the creditor has exercised or enforced his rights and any other thing done or not done by the creditor. Indeed, it may additionally take into account any other matters, but the Bill still does not say precisely what I want it to say. I want it to say that the court shall specifically take into account the specific strengths of the parties at the time that the agreement was entered into. Nothing short of that, I fear, will protect the vulnerable.
Although I notice that the Opposition did not, I particularly welcome the burden that is intended to be placed on the creditor to prove that the credit relationship is fair rather than on the debtor needing to prove that it is unfair. In that respect, it is important that the creditor has taken account of the debtor's ability to pay or repay the debt at the time of the making of the agreement. Indeed, I still think that there is a need for a cap on interest rates perhaps by some formula linked to the Bank of England lending rate. After all, the money lenders Act provided that a rate in excess of 48 per cent. was prima facie excessive. I would not have thought that it would be difficult to create some sort of framework to set out a rate of interest that would normally be considered excessive—say, 10 times the Bank of England lending rate—to give the court guidance, yet still leave it discretion.
I want to highlight the fact that poor people are in the main those who suffer from the current credit market. It is thus they who need the support, so surely their individual circumstances must be taken into account. The study by the university of Brighton to which I referred also queried why poor people were prepared to deal with companies such as the Provident that charge rates of perhaps 40 or 50 per cent., or even more. It found that the answer was twofold. First, it found that other credit lines were not available. Most people found the social fund almost impossible to access. As we all know, the vast majority of people who apply to the social fund are turned down. Additionally, people in many parts of the country failed, or were unable, to contact credit unions, which would often be the answer. The second reason found by the study was simple. It found that the relationship between clients and collectors from groups such as the Provident operated on first-name terms with frequent contact, so the collectors were trusted.
If we are to avoid poor people falling into such pitfalls, we need to give greater help to groups such as credit unions, which are already making a difference in a small way. Certainly the Hastings credit union is making a difference and I congratulate it on its work. Incidentally, I understand that the rates of interest that credit unions can charge are limited, which is an argument for issuing guidance on the matter.
I pay tribute to the sterling work of debt advice services, such as that run by the Hastings citizens advice bureau. They really are life-savers, and I hope that through the Bill we can lighten their load.
Thank you, Mr. Deputy Speaker, for giving me the opportunity to make my maiden speech. I congratulate my hon. Friend Greg Clark on making what I am sure you will agree, was a distinguished and passionate speech in the best traditions of the House.
It is a great honour to have been elected by the people of Basingstoke to be their Member of Parliament. Basingstoke is a great place to live and we are very proud of it. I pay special tribute to my predecessor, Andrew Hunter, who served the Basingstoke constituency for 22 years. He was known in the House as a passionate man of strong principles and Basingstoke knew him as someone who worked tirelessly for the many hundreds of constituents who came to him for help and support. Time after time during the election campaign I met people who told me that Andrew would be a tough act to follow and I am sure that they were right. Throughout the past two years, Andrew has extended to me enormous support and guidance, for which I will always be grateful. As a result of that help, I hope that I am better placed to attempt to meet the high standards that he set.
I am truly fortunate to have been elected to represent a constituency that I believe exemplifies all that is great about Britain. It is a cocktail of the historic and the modern; the rural and the urban. It is one of the largest centres of employment in the south-east of England and is set in the most beautiful rolling Hampshire countryside. I believe that Basingstoke is a success because it has a unique balance between those different elements, so it is vital for us to protect that balance.
The constituency itself comprises the town of Basingstoke and its many surrounding villages, including Pamber, Sherfield-on-Loddon, Bramley and Silchester, and the communities of the idyllic Candover valley, all of which are home to numerous businesses, farms and estates, as well as to residents working in Basingstoke and further afield. The origins of our community, like so many, date back to Roman times. Silchester, a beautiful village just north of Basingstoke, was once a vibrant and thriving Roman settlement. The area around it is an archaeological treasure trove. The walls of the old Roman town still stand and give visitors an idea of the scale of this once pivotal Roman settlement. History does not tell us why, after prospering for so many years, the original Silchester settlement was abandoned. Today's Silchester may be a smaller affair, but the residents typify north Hampshire people in the pride that they take in nurturing their community.
Basingstoke also had an important role in the civil war. The siege and ultimate storming of Basing house is an important part of our nation's history and of this place. Basing house, home of the royalist Marquis of Winchester, was the largest fortified house in England. It is said that when the house was finally stormed by Cromwell in October 1645, King Charles realised that his cause had finally been lost.
In common with many buildings visited by Cromwell during the civil war, Basing house is now in complete ruins, but the site is carefully protected by Hampshire county council and Basingstoke's archaeological and historical societies. It also provides a fine venue for many local events throughout the year, some of which I have had the pleasure of attending with my husband and three children.
Basingstoke has been for centuries a market town. Indeed, the market recently celebrated its 790th anniversary. This event was duly commemorated and celebrated by Basingstoke's heritage society. All those historical facts serve as a reminder that the face of the modern constituency of Basingstoke belies a proud history. That continuity through history can also be found in some of the Basingstoke's past representatives in the House. Immediately prior to the civil war, Members for Hampshire included Sir Henry Wallop and Sir Richard and Sir Thomas Jervoise. I am pleased to say that they were all on the parliamentary side. Their descendants still live in the constituency and make a significant contribution to our local community.
I had great pleasure in working with another of my predecessors during the general election campaign—Sir David Mitchell, father of my hon. Friend Mr. Mitchell. Sir David was first elected as Basingstoke's Member of Parliament in 1964, the year I was born—something I find more amusing than Sir David does. On a superficial level, there are many differences between Sir David, Andrew Hunter and myself. I may be Basingstoke's first female Member of Parliament and the first to be educated at a comprehensive school, but in truth there is great continuity in our shared Conservative beliefs and our passion for Basingstoke's continued success.
The modern face of Basingstoke boasts excellent facilities and amenities. We are fortunate to be served by the North Hampshire hospital, located in the constituency of my right hon. Friend Sir George Young. It is a world leader in treating bowel and liver cancer. We are home to the Anvil, one of the finest modern concert halls in the country. More recently, the town has seen the arrival of Festival Place, a state-of-the-art shopping development. But Basingstoke is not—or not yet—utopia. The delicate balance of Basingstoke's character and uniqueness, which has proved so attractive to families and businesses alike, is under threat.
Basingstoke has taken its responsibility to provide new housing very seriously over the past 40 years. In more recent years, the Government's appetite to build houses in Basingstoke has increased significantly, but the funding for necessary local services has not. When we look at the services that support those new homes, we see that they have simply not kept pace. Our trains are overcrowded, our doctors' surgeries are bursting at the seams, and our police struggle to deal with antisocial behaviour because they do not have the strength and numbers to provide more visible policing. Housing development plans have mushroomed, sometimes with questionable benefits for those seeking more affordable housing. These are all problems that were of enormous importance during my election campaign and will be important priorities for me in my work in this place.
We need to support and protect our towns from becoming characterless urban sprawls, where the distinct nature of each community is blurred and lost. Basingstoke will retain its identity if we maintain its unique character, which I believe is best understood by those who have the interests of Basingstoke at heart and those who are locally accountable to the Basingstoke electorate.
Retaining our strength is important not only for people locally but for the country as a whole. Basingstoke has a worldwide reputation for business, and our companies employ more than 80,000 people in many diverse fields. Our success owes much to classic industrial location theory; we have a skilled work force, good transport links and good proximity to London and the European markets. The town boasts offices of some of the world's leading companies. It will be of great importance to me in my work here to ensure that Basingstoke is able to continue to compete in the global market.
Places such as Basingstoke are the nation's economic powerhouses, generating the tax that makes so many of our present Government's plans possible. Basingstoke needs a Government who understand how to provide the right environment for future success, giving an opportunity to succeed and build on the wealth of the nation. If business in this country is overtaxed or overburdened with regulation, it can, and will, choose to locate elsewhere. As a graduate, like others on the Opposition Benches today, of the London School of Economics, I appreciate that there is nothing inevitable about Basingstoke's continued economic prosperity and, unlike the residents of Silchester all those years ago, we should take nothing for granted.
It should come as no surprise that Basingstoke has participated fully in the explosion of consumer debt that has taken place throughout the country in recent years. The world has changed enormously since 1974, when the existing Consumer Credit Act was passed. I recall being taken by my father in the mid-1970s to a local building society to open a savings account, on the basis that if one did not have a record of savings then, one simply could not get a mortgage in the future. How times have changed.
The vast majority of lenders treat customers fairly. A small proportion do not, with devastating consequences. I know from talking to those at my local citizens advice bureau, the people who often have to deal with the consequences of the current legislation, that they face unprecedented demand for debt advice counselling. They gave me an interesting example of a client who came to them 12 months ago. She had a borrowed a small amount, £400, by way of an e-loan. She had gone on the web to a virtual broker and been charged £30 for doing an online search for the best deal. The best deal that the broker came up with was a loan with interest payable at 300 per cent. APR. In fact, the agreement that the client signed, online, included a monthly repayment figure that serviced the interest only and not one penny of the capital. That meant that the borrower would simply never repay the loan. The full terms and conditions of the loan came to light only when she contacted the lender for a settlement figure to be told that she had not even started to pay off the debt. The Bill is designed to avoid that type of situation being allowed to happen in future. I hope that it will help to ensure that consumers are better informed when entering into any credit agreement and that it will help to promote a more transparent market based on responsible lending.
As a Conservative, my guiding principles are based on opportunity and freedom, and nowhere more than in business. I abhor unnecessary regulation, and I dare say that there are elements of the Bill that may prove unnecessary. However, I believe that this is one of those areas where regulation is required to protect consumers in the unequal battle with lenders and other creditors.
Thank you, Mr. Deputy Speaker, for calling me to speak today. I would like to thank the people of Basingstoke for giving me this opportunity to serve them.
Before I address some remarks to the Bill I would like to compliment the two Conservative Members who have made maiden speeches. Greg Clark gave an incredibly competent and self-assured maiden speech. I was particularly interested, in so far as we have one thing in common: I come from a spa town, Cheltenham. I was interested that he brought out the point that even within towns that are popularly considered to be affluent there are invariably pockets of poverty that must be addressed. The fact that they are in towns of affluence often makes it more difficult to do so. The quality of his contribution demonstrated the fact that he will be most effective in addressing those problems.
Mrs. Miller gave a fascinating history of Hampshire. The research that she did and the fact that she has obviously engaged with so many constituents' problems already clearly demonstrate that she will prove to be a most effective representative for her constituency in this House. I wish both hon. Members well.
Like others, I congratulate my hon. Friend the Minister on bringing the Bill before the House again. Like many others, I was very disappointed that it did not reach the statute book in the previous Parliament, and given the problems that it addresses, I was particularly concerned in case it was not reintroduced early in this Parliament. My hon. Friend has insisted on that and made sure of it, and I congratulate him.
I see this Bill as an essential part of an anti-poverty strategy. It will not in itself deal with all aspects of poverty, but it undoubtedly addresses a particular contributor to poverty in this country that must be addressed, and it complements a range of other policies. I instinctively prefer a lighter-touch approach to manufacturing and in some cases to the financial industry, but given the debate on a number of issues in the Bill, particularly capped interest rates, industry must be made aware that this is a wake-up call and that the Government maintain a reserve power to take action if the proposals embodied in this legislation do not deal with the problems that have been so effectively articulated by a range of speakers to date.
A number of Members have pointed out the changes that have taken place since the enactment of the Consumer Credit Act 1974. That made me think back to that year. I remember it particularly well, because it was the year when I first applied for a mortgage. I cannot help but contrast my experience then with that of people now. I remember, having saved in a local financial institution for some years, asking about the possibility of a mortgage. I had to sit down and go through all the details of my income and expenditure, and wait with some trepidation while the manager of the local branch looked through them dubiously before, with certain admonishments about the pattern of my future expenditure, grudgingly agreeing to give me a small mortgage.
Now, that same financial institution is one of many bombarding me with offers of loans and mortgages that I do not want. If I had been told that then, I would truly have believed that the revolution had come. In many ways, of course, a revolution has taken place: the financial deregulation in the 1980s. It has led to a transformation in the financial world. We have a huge increase in lenders. That has led to more competition, and in many ways that is welcome. We have more sophisticated marketing, which has both its upside and its downside. This is meant for those people who are financially sound with good jobs and for those who are financially well educated. It has been a liberating experience for them. New opportunities have been offered to people in those categories. That has had a vital role in improving the lifestyle of many people, and I would not wish to decry or belittle that.
There are other groups such as the unemployed, those on low incomes, single parents and some elderly people on low fixed incomes who have had an entirely different experience as a result of market deregulation. On one hand, they are bombarded with images of instant consumer gratification that can come with the flick of a credit card. On the other, they are confronted with the reality of having a low income, a low credit rating and high risk. When obtaining credit, they face high interest rates or, in addition, hidden charges. They are more at risk than others, and so many of the mainstream credit providers do not have the products that will suit these people. For a variety of reasons, people in some of the poorest areas on the lowest incomes are not able to have access to a range of products that are offered by the mainstream financial providers, because they have either withdrawn from those areas or because they are just not available to them.
There is a vacuum, which is met by doorstep salesmen who peddle loans with high interest rates. Such arrangements are often disguised by complex regulations and promoted, sometimes, by simplistic and seductive marketing techniques. All too often these arrangements send people who are already on low incomes down a spiral of higher debt charges and greater poverty. For someone on a very low income, it takes only what we would consider a relatively small financial problem to place them on the slippery slope.
A woman came to my constituency surgery in tears. She lived in privately rented accommodation and her central heating system had packed up. Her landlord would not repair it. Instead, he gave her two convector heaters as a substitute. These heaters were eating up electricity. As a result, her fuel bills were rising. She ran into debt. She went to debt companies and there was a high interest rate. The process escalated until she was in a state of desperation. That is just one example, but I know that it is mirrored by those of hundreds of thousands of people throughout the country who live in communities like the one that I represent.
A high proportion of people who live in constituencies such as mine have no bank accounts. Research was undertaken by Salford university in a Sandwell ward—the local authority—on behalf of the Sandwell credit union. Its findings showed that 33 per cent. of residents had no savings accounts, that 20 per cent. had no bank accounts and that 29 per cent. had debt problems. I know that these figures are reflected in other wards. All too often it is the small items—the need to have a washing machine, to provide school uniforms for the children and tragically, in some instances, the need for the elderly to pay for a funeral—that cause problems. An example from the local CAB is of someone borrowing £1,000 for a funeral to bury a relative and having to pay £600 in interest. My hon. Friend Michael Jabez Foster mentioned credit unions, as did a number of other Members. Credit unions play a valuable role in filling a gap in the market, and I am grateful for the efforts of Sandwell credit union to meet such demands. I wish it well.
I should like to emphasise the fact that the financial services industry as a whole should give all the backing it can to credit unions, as there have been institutional obstacles to their development. I also emphasise the need for everyone, irrespective of their credit status, to play a role within credit unions; otherwise there is a danger that credit unions will be regarded as the poor man's bank. Many poor people do not want to be associated with a poor man's bank. Perversely, they feel more confident dealing with slicker financial institutions that do not offer the same sort of service. The work of credit unions should therefore be promoted.
That is a fair point. We must encourage people to put money into credit unions. People often use credit unions to borrow money which, in a small number of cases, has led to credit unions getting into difficulties.
I could not agree more. I shall certainly join the credit union that has just started up in my local area to demonstrate that people need to save and that it is a worthwhile savings institution. It can play a vital role in combating poverty as well as providing loans for people who are not in poverty.
Like other hon. Members, I wish to pay tribute to the role of my local citizens advice bureau, which dealt with £18 million worth of debt problems in 2004. It is at the forefront of efforts to tackle the issue, and its work in alleviating problems experienced by people locally is to be applauded. The experience it has gained in undertaking that work provides MPs and ultimately the Government with invaluable evidence on the ground of the way in which our policies are working and the need to amend legislation to prevent problems from arising.
Various issues that need to be addressed by the Bill have been mentioned by hon. Members, and I shall highlight one or two. Aggressive marketing and responsible lending are important issues. When my stepson was 18, he returned with a group of people from a Club 18–30 holiday in Ibiza to the local airport in the early hours of the morning. The group was met by credit card salesmen, if they can be called that, promoting credit cards to young people who do not have any experience of financial management and are somewhat high from their holiday experience. They need money, and are easy prey for people deploying unscrupulous techniques. Happily, or perhaps unhappily, my stepson came home and we made sure that the credit card was soon dealt with. I am concerned, however, that if young people do not have parents skilled in financial management, they could be sucked into a spiral of debt at an early age without sufficient earnings or the ability to cope with the problem.
The issue of credit cheques has been well argued by other hon. Members, so I shall not labour it, but I emphasise the point about responsible lending. Let me quote evidence from Centrepoint, the charity dealing with the homeless, which says that 20 per cent. of its residents—many of these people do not have a job, and they do not even have homes—have been targeted by credit card companies. There must be means in the legislation to place an obligation on the companies involved to target their marketing more responsibly. I agree with my right hon. Friend John Battle that the concept of a responsible lending test needs to be embodied somewhere in the Bill.
Other issues that need to be addressed include payment protection insurance. All too often, insurance is sold to people who cannot benefit from it. The worst example that I have seen involved a couple with £77,000 of debt who took out £44,000 worth of insurance. They had mental health problems and would never have qualified to receive any payments in the first place.
Debt management companies are another group that needs to be subject to some sort of regulation and testing. Often, people who have gone to the citizens advice bureau for support in dealing with their financial problems have already been to debt management companies. In some cases, the advice and actions of such companies have compounded the debt problems of those individuals. The legislation must contain provisions to deal with that issue.
My hon. Friend has been very generous in giving way. Does he agree that problems can arise not only when the debt management companies address existing debts? We see in television advertisements how such companies often encourage people to take on another lump of debt, perhaps because they are making lower payments over a much longer period, to go on holiday or buy some other goods. That can mean that the problem simply becomes worse.
As always, my hon. Friend makes a valuable point. Again, the issue must be dealt with through the responsible lending approach that must be incorporated in the legislation.
On the alternative disputes resolution procedure, my right hon. Friend the Member for Leeds, West made some valuable and important points about people's engagement with the legal process. We must be clear that the most vulnerable are often those who either instinctively do not want to go through a court procedure or are not skilled in grievance and complaints procedures. In some cases, people simply would not know how to do so. There is a danger that, unless consumers know very early on that there is a clear and free system of redress that can be used if they feel that they are being unfairly treated, we could lose the benefit of the Bill. Many such people would not think of taking action against the very companies that exploit them, as they would feel under-confident, and under-equipped and under-qualified to do so. I emphasise to the Minister that means of redress must be made clear, easy to use and free.
The Bill can play an important role in reducing the sum total of misery caused by poverty and the cost incurred by the general community. We are discussing the impact of debt not only on individuals, but on the health service—many people take up GPs' valuable time with stress-related problems, which are often associated with poverty and, in some specific cases, with debt. We have heard examples of debt leading to suicide, and such cases impact on both the community and services at large. I welcome the Bill, which will benefit the whole community as well as the individuals concerned.
A number of improvements could be made in other areas to compliment the Bill. The Minister is not responsible for all those areas, but I must mention the reform of the social fund, which would stop so many people having to take out small but potentially expensive loans, and the need for efficient benefit administration, because inefficient administration often forces people to take out loans. In combination with other reforms in our welfare support system, the Bill will make a meaningful contribution to reducing poverty and the problems that arise from it in our community.
I am pleased to have the chance briefly to contribute to the debate.
I congratulate my hon. Friend Greg Clark on his excellent maiden speech. He has already made a distinguished contribution to the Conservative party as director of policy—some might say that a little more work remains to be done given the evidence of the past few weeks—and I read many of the research department's products when he was in charge. I am sure that we will hear more from him.
I also congratulate my hon. Friend Mrs. Miller on her maiden speech. Not only were we at university together, to which she alluded, but I shared a flat with her husband, and her daughter, Georgia Charlotte Mary Miller, is my goddaughter. I am biased in her favour and congratulate her on having arrived here. She may be charming, but she has inner steel and determination—she has not only run a successful and happy family with three children over the past 15 to 20 years, but had an outstanding business career. I am sure that she will make a wonderful contribution to this House.
I have listened to the debate with interest and particularly enjoyed the contribution by John Battle—I hope that the Minister was listening carefully, and I think that he was. If we want to restore people's faith in the House of Commons, we could do no more than play the tape of the right hon. Gentleman's speech, which was passionate, highly informed and persuasive. I hope that the Minister will listen carefully to the right hon. Gentleman in Committee.
I want to deal with a couple of issues that have already been alluded to, the first of which is the question whether the definition of "unfairness" should be tighter. On the face of it, I agree with the Minister that the definition should not be too precise. Clause 19, which deals with unfair relationships between creditors and debtors, appears to give the court everything that it could possibly want:
"The court may make an order . . . if it determines that the relationship between the creditor and the debtor arising out of the agreement . . . is unfair to the debtor because of . . . any of the terms of the agreement or of any related agreement; the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement" or, and one could not ask for a greater carte blanche than this,
"any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement)."
At least on the face of it, that would seem to provide the court with everything that it needs, but my concern, to echo the right hon. Member for Leeds, West, is about cases that do not arrive in court. We are not talking about equal parties here.
That also relates to the point about retrospection. Generally speaking, as I think my hon. Friend Charles Hendry would agree, we would be hesitant about retrospective legislation because one of the key principles of the law is not only equality before the law, but certainty. One might think that a clause that states that
"A determination may be made under this section in relation to a relationship notwithstanding that the relationship may have ended" would be deeply damaging to any sense of certainty between two parties entering into an agreement. Instinctively, I would be much less worried about retrospective legislation in this context than in some others, because it does not deal with parties who are equal in any way whatsoever, but with people who are often at the very bottom end of the income scale—people who live in grinding poverty with the greatest difficulty in getting by, as we have heard, not just from week to week but from day to day, and who live in fear with debt collectors already knocking on their doors. That must be recognised in the Bill so that the courts will understand that Parliament enacted it in order to stand up for the little people, not the big people.
My experience as a constituency MP suggests to me that the problem exists not only at the bottom end of the scale but in the middle, where respectable, or so-called respectable, financial institutions deal with people who have modest incomes but some savings. In such cases, the scales are weighted too much in favour of the financial institution. I have often dealt with the financial services ombudsman—I am sure that other Members have had similar experiences—and sometimes think, "Whose side are you on?" The idea is supposedly to help the little person, not the big institution. I was involved in a case involving Abbey National that has still not been resolved satisfactorily. On
Of course we want equality and certainty before the law, but we also want justice. There has been a general recognition, in successive Governments' approach to regulation, that wholesale credit markets or wholesale credit derivative markets, for example, require a very light touch because one is dealing with adult parties to a transaction who do not want or expect the Government to interfere very much. At the other end, there is a much greater degree of interference; that is why I was attracted to the suggestion of a reserve power. I should like there to be powers that are potentially draconian but exercised with the discretion and judgment of Solomon, although I know that is not always an easy balance to strike. More needs to be done for the consumer and for the little person, not for the big institutions, which already have too many other cards stacked in their favour.
Thank you, Mr. Deputy Speaker, for this great opportunity to speak in the debate. I congratulate my hon. Friend Mrs. Miller on a very passionate speech—indeed, she used the word, "passion". I also congratulate my hon. Friend Greg Clark. Those Members who were listening carefully will recall that he mentioned his love life—he said, "I have fallen in love with Tunbridge Wells." If I may be bold and slightly controversial in suggesting an affair, I ask him to find room in his heart to come and speak in Southend, a town with which I am sure he will also fall in love.
I follow in the footsteps of Sir Teddy Taylor. Teddy and his wife Sheila welcomed Katy and me to the area with open arms and have always been there offering a helping hand. Our friendship is no doubt assisted somewhat by the fact that we share a passion for protecting the sovereignty of this Parliament and the United Kingdom from all who attack it.
Teddy served the constituencies of Southend, East and what is now called Rochford and Southend, East for some 25 years. Before that, he was the Member of Parliament for Glasgow, Cathcart. In total, he was a Member of Parliament for 40 years, having first been elected in 1964. He has the respect of everyone in the constituency, from every walk of life and political party. He also served the country in the Scottish Office and subsequently as shadow Secretary of State for Scotland. He was and will continue to be a force in British politics and a great character. As I said, Teddy was first elected in 1964, before my parents had even met, let alone when I was a twinkle in their eye. I shall not try to replace Teddy, either in the Chamber or in the constituency. Apart from anything else, I cannot do the accent.
I trust that the House will indulge me while I give an overview of the constituency. Rochford, to the north, is a long-standing market town, which has excellent architecture and is rich in history. It lies in Rochford district and Essex county council. Rochford district also boasts the lovely villages of Great Wakering, Little Wakering and Barling. Foulness Island, at the most easterly point of the constituency, was home to the Ministry of Defence and now accommodates QinetiQ, which tests munitions for our armed forces. The island represents half the constituency in size but contains only 179 voters.
By contrast, Southend-on-Sea is much more densely populated. Our home is only a few minutes from the water, with wonderful views across to Kent and out to the ocean. We have a pier—the longest pleasure pier in the world. We also have award-winning beaches. It is a truly wonderful place. On a warm summer night, with the tide in, there are few better places to be than on the front, enjoying the sand, the sea and a plethora of other activities. With new, larger hotels being built in the area, it will doubtless be an excellent place for political conferences, especially for the smaller parties.
Southend is not all sea and fun—we have a serious side. We have a vibrant education sector, with excellent grammar schools throughout the constituency and throughout Southend. In addition, the university of Essex, where I did my degree, has an expanding and welcome presence in Southend.
The constituency also has its challenges. I especially want to mention two broad challenges. The first involves infrastructure and the second funding for our services. There is a problem with congestion for traffic heading from east to west and west to east. I would support work to widen the A127 and any measures to speed up traffic along that road. I would also welcome an outer relief road, although I am cautious about supporting specific proposals. Any outer relief road cannot be at the expense of building on the space for residential use. Rochford and Southend have unique charms and I would not want the areas to merge into one. Alas, once relief roads are built, the land within them becomes indefensible.
I want to refer to the funding of local services. Like many seaside towns, Southend has a different set of priorities compared with the rest of the United Kingdom. The seaside brings people into the area in their later years, which puts a particular strain on the health service budget. Lower cost accommodation means that authorities near London send asylum seekers to be accommodated in the area, although the local council gets no additional funding for the secondary costs of those populations. I look forward to working with colleagues in all parties to ensure that the unique problems of seaside towns are tackled as sympathetically as possible.
My hon. Friend Mr. Amess recently raised the problem of funding for Southend council with the Local Government Minister in an Adjournment debate. There are several causes of the funding crisis, but I want to highlight the main one, which was raised in the debate and is a matter of constant dispute in Southend. The dispute centres on the assertion by the Office for National Statistics that there has been a massive reduction in Southend's population.
Absolutely. My hon. Friend is entirely right. To be frank, people in Southend laugh at that suggestion. Southend has new build and infill building, alongside the many houses that have been converted into flats.
There are arguably too many people coming to Southend because it is such a great place. The lack of recognition of the real population figure has lead to lower funding based on an artificially low population figure. I was extremely impressed by the Minister's attitude to this largely non-party political matter. It is clear that when there is a genuine problem, that Minister in particular is ready to listen, and I believe that he will be ready to act if the case is proven. I am looking forward to the more detailed discussions on the matter that are planned for the next few weeks.
I would hate to let my maiden speech descend into a shopping list for funding, but there is also a real problem with the cliff slipping into the sea. This is not an aesthetic problem; it could threaten large numbers of houses, as well as our main commercial and tourist centres. The cost of resolving this problem is some £40 million, although we have been unable to find the appropriate funding. While money seems to be available for high profile capital projects across the country, there appears to be insufficient money either for large scale repair works or to support revenue expenditure.
I come now to the Consumer Credit Bill. I welcome the Bill from the broad consumer protection perspective, but I wish to raise two points of concern, both of which have already been mentioned today. My first is the excessive burden being placed on the financial services industry. My second, which has been raised by many hon. Members, especially when the Bill was last in Committee, is the lack of definition of an unfair relationship between a creditor and a debtor, which has caused all kinds of problems and will continue to do so unless we do something about it in Committee.
I have seen at first hand the effects of regulation on the financial services industry, both in the UK and overseas. I spent 10 years of my life working for a British bank. I also worked in the unit trust industry at the time of the abolition of personal equity plans and tax exempt special savings accounts and the introduction of individual savings accounts. I was also responsible for regulatory changes in another country. In both cases, the legislative changes and the projects that followed prevented us from concentrating on our customers' needs, which is fundamental, and from providing value for shareholders, which is in the long-term interest.
It was with that in mind that I read the full regulatory impact assessment referred to in the explanatory notes to the Bill. No one can criticise the document for its lack of detail, but I found that it fell well short of the mark in business reality. Furthermore, I was concerned, when speaking to some in the industry, about the speed at which the consultation was done. Numbers have been placed on the regulatory costs, but I do not believe that those figures are a fair reflection.
My second point involves an example of where the costs of the regulation cannot be accounted for because the regulation itself is unclear. I am referring to the impact of the lack of a clear definition in the unfair relationships test. I trust that the House will forgive my bluntness, but it appears to me that the definition has been fudged. The buck has been passed to the courts, and in my view that is very dangerous. The Bill adds the following to the definition of something that is unfair:
"any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement)."
It strikes me that that could cover just about anything.
John Battle spoke, in his very thoughtful speech, about whether we should go for openness or narrowness. I would go for narrowness, but the difference between openness and narrowness is not the point. The point is clarity of definition, and I do not believe that that should be for the courts to decide.
If we leave it to the court, that is particularly invidious given that the Bill states that that test will be retrospective. It seems wrong to me, as a new Member of Parliament, that new legislation will cover old contractual relationships. Certainly, the problems of retrospective legislation will increase the cost of syndicated loans. Purchasers of a syndicated loan book will not know whether they are purchasing an unfair loan book, which has a number of implications: it would increase legal costs, reduce the value of the loan book, and ultimately and perhaps most importantly, make the cost of lending to the average consumer higher, which is not an intended consequence of this legislation.
Finally, in my maiden speech, may I say that it is a privilege and an honour to serve in this great House?
May I also pay tribute to the hon. Members for Tunbridge Wells (Greg Clark), for Basingstoke (Mrs. Miller) and for Rochford and Southend, East (James Duddridge) for their beautifully delivered paeans to their respective constituencies, parts of England of which, I must admit, I was hitherto deficiently knowledgeable. My only regret is that I am unlikely to get an invitation to address a branch meeting of my party in those areas, although I will take up the kind offer of the hon. Member for Rochford and Southend, East of possibly hosting Plaid Cymru's annual conference—I am not sure what the steering committee will say, but hope springs eternal.
Most of us would agree that the Bill is long overdue and much needed, and we would all pay tribute to the Minister, to whose enormous personal credit it is that the Bill has returned to the House at such an early stage. Millions of families are living on the edge of a financial precipice, and more and more fail to keep up with their debt repayments, driving them further into difficulty. We heard Norman Lamb referring to the data from some of the clearing banks about bad debts. It was reported yesterday that London Scottish bank, which specialises in lending to customers with weak credit ratings, has nearly doubled its provision for bad and doubtful debts. Clearly, the phenomenon is widespread.
As other Members have mentioned, it is important to understand the wider context, as the problem of over-indebtedness has deep social roots. It is a cultural as much as a social and economic phenomenon, and is an element of the competitive consumption and hyper-consumption which is part of modern culture and society, which exists at all levels of income, and which percolates down to those on lower incomes. That is why it is right and proper for Government to intervene. Such an endemic problem, with such deep social and cultural roots, needs to have a societal response, and only a Government can provide the framework to get to grips with that. It is therefore absolutely right to introduce this Bill, whatever the Monetary Policy Committee has done with regard to interest rates this afternoon. I do not know whether it has added further to the pain that we all suffer from time to time. Clearly, however, the problem of debt is deeply rooted, and it is right for the Government to address it.
Other Members have referred to some of the figures, and the National Association of Citizens Advice Bureaux has reported a 74 per cent. increase during the past seven years in the number of debt cases with which it deals. Yesterday, the Department published its own survey, conducted by MORI, on over-indebtedness. The Minister said that it provided some comfort because it showed that the percentage who find debts unmanageable is still relatively small, although that is subjective, as people were reporting their own feelings—the objective view of their indebtedness might be somewhat different.
Nine per cent. said that they spent more than half their incomes on total credit repayments—almost one in 10. That is an incredible figure. Other parts of the survey also struck me as worrying, such as the finding that 8 per cent.—a different 8 per cent.—spent more than a quarter of their incomes on unsecured credit repayments. Those are historic, unheard of levels. We are talking about a small proportion of people, but a proportion that is spending serious quantities of disposable income on credit repayment.
The most recent family spending report from the Office for National Statistics reveals that the problem extends across the board. The average British household now spends £592 a week. Its income is £570. So the average British family are living beyond their means—admittedly by only about £20 a week, but of course that is itself an average. At one end of the spectrum, there are serious problems with unsustainable consumer borrowing.
It is obviously right for the Government to act quickly. The key problem with their proposals relates to the issue of rights and responsibilities, that mantra to which the Prime Minister likes to refer. The Bill gives consumers important new rights to apply to the courts or the Financial Ombudsman Service, or use the alternative disputes procedure, and to ask those authorities to consider whether a lender has acted unfairly. It does not, however, place any new duty on lenders to consider borrowers' means properly before granting loans. Some of us feel that the Government have not got the balance entirely right at this stage.
A wonderful parallel is the Consumer Credit Bill tabled yesterday in the South African Parliament by the South African Department of Trade and Industry. I am sure that there are very good relationships between the two Parliaments; if there are not, no doubt the former Chief Secretary to the Treasury will be able to facilitate them. The Bill, which was preceded by a draft version, proposes a maximum rate of interest and fees. Almost every country in the world with an interest rate cap is aware of the difficulty—the lender could get around it by introducing charges through the back door—and allows for it in legislation by rolling together interest rates and other charges. The South African Bill also imposes a maximum limit on consumer liability to prevent lenders from getting around an interest rate cap by extending the term of a loan.
I am interested in what the hon. Gentleman is saying about the South African experience. Our worry is that a cap will prevent those at the lower end from being able to borrow. I realise that they will have to pay higher charges, but that is connected with their credit rating. What has the effect been in South Africa? We should bear in mind that the UK market is one of the most complex in the world.
At this stage it is only a proposal, so there has been no experience in the South African market. I think it fair to say, though, that the South African financial services sector is slightly more dysfunctional than that in the UK. I must be careful about what I say, but I think that part of the problem is due to the devolving of financial service regulation to the provinces. Each province takes a slightly different approach, so the situation in South Africa is slightly complex. But in the light of the experience of most other countries in which an interest rate cap has been introduced, I challenge the research that suggests that doing so deepens financial exclusion.
For example, research from Germany suggests that the opposite is true. There is a statutory responsibility in Germany to measure financial exclusion, which was introduced when the interest rate cap was introduced precisely because of the fear of financial exclusion. However, such exclusion has not happened; indeed, the opposite has occurred.
I used to live in Germany, and the problem with capping is that it pushes the problem underground; such people cannot get credit because interest rates are set according to the liability—to the risk. I understand the hon. Gentleman's argument, but setting a cap risks pushing such people into the black market, which is much more dangerous than the Minister's proposal.
I have some difficultly with that argument, although I am sure that that will happen to some extent. But if extortionate lending exists, it surely does not really matter whether it is legal or illegal. Are we really saying, "Such people are going to be exploited anyway, so they might as well be exploited where we can see them"? Surely the point is to try to minimise any exploitative or extortionate lending. By extension, one could advance the same argument in respect of the unfairness test, which, if it works, prevents the instances of very short-term loans with APRs of 1000 per cent. that we have witnessed in the sub-optimum market. We should respond by trying to introduce positive measures—by providing other means for people on very low incomes to access short-term credit, including credit unions and a reformed social fund. The hon. Gentleman is doubtless right to say that such things will happen, but we need to introduce other measures to prevent them from doing so.
The other interesting aspect of the South African Bill is the prohibition of reckless lending. The South African DTI is essentially placing a duty on the lender to meet his responsibilities, and to secure information about the borrower's current financial situation in advance of making a decision on the loan. Of course, "recklessness" has a well-rehearsed meaning in English common law, which the South African Bill sets out. It also introduces a new definition of over-indebtedness, and enables a new regulator to set the terms of repayment when a borrower has got into difficulty and needs some help getting out of it. So there are a number of interesting ideas in that Bill that the Minister might want to have a word with his South African colleagues about.
In modern politics, consensus is meant to be a universal good, but I must admit that when Front Benchers of all three main parties speak with one voice, a shiver goes down my spine. The more heretical voices that we have, the better. I am glad to hear that there are one or two such voices on the Labour Benches, and I certainly join them. There are three things that I will certainly push for during the later stages of the Bill's consideration. The first is the introduction of a responsible lending test, or at least the placing of a duty on the lender to take account of the borrower's ability to repay. That also gives rise to the question of data sharing, which Norman Lamb discussed.
Secondly, I should particularly like the Bill to address default charges. I am not completely clear about the current legal position of default charges. I was under the impression that it was already illegal, or certainly against the banking code, for default charges to include any profit margin.
It is certainly important to consider that issue because of the possibility of a perverse incentive for lenders to drive their customers further and further into debt, as we have heard—provided, of course, that they can make some repayment. Figures produced by Debt on our Doorstep suggest that banks made £3 billion last year from default charges, and we have all been on the receiving end of them from time to time. Certainly, enshrining the principle in law that a default charge can only represent the additional cost involved to the bank and ensuring that such things are transparent is worth considering.
Thirdly, the Bill should cover my much-cherished interest rate cap. The Minister very charitably said last time that he would look at that again, and now is a perfect opportunity for him to do so. Despite his assurances, we do not want to wait another 30 years to deal with the problem. Of course, we have taken six years to get from when the OFT pointed out the failings of the existing legislation on extortionate lending—as far back as 1999—to where we are now. Surely, it would be better to introduce an enabling clause to allow the Minister to provide interest rate caps through secondary legislation, as he proposed to do with other measures under the Bill, if only because, as has been suggested, such caps would constitute draconian measures to focus the attention of those people in the industry who perhaps need to be educated about their corporate social responsibility.
I was surprised to hear the Liberal Democrats citing Government evidence. After the dodgy dossiers that we have had from the Government, I would be careful about believing every unqualified thing that they produce in support of their policies. There is certainly fairly good reason to doubt some of the conclusions and data in the Policis report, and we have discussed that previously. Perhaps it would be possible for the Government to look again at some of the shortcomings of that research, certainly in relation to Germany.
The hon. Gentleman may remember that I said that, if any other evidence was produced in addition to ours, we would consider it. I am still waiting for it.
I shall review my staffing budget to find out whether it is possible to look into that, but there certainly seems to be some support among Labour Members for the idea of creating a reserve power—a Henry VIII clause—to introduce secondary legislation whereby the Minister could provide interest rate caps. Frankly, I have my doubts about some of the problems that have been raised by the Government, principally because such caps seem to work perfectly well in a wide range of consumer credit markets across the world. Interest rate caps are not the only answer to the problems and challenges that we face, but the Government should have them in reserve, as part of their armoury.
Thank you, Mr. Deputy Speaker, for allowing me the opportunity to make my maiden speech. First, may I congratulate my colleagues who have already spoken so well earlier in the debate? My hon. Friend James Duddridge spoke with passion and eloquence worthy of his distinguished predecessor, and I am sure that he will continue in that fine tradition. My hon. Friend Mrs. Miller spoke extremely eloquently. Indeed, another of my hon. Friends referred to her inner steel. I wonder, in fact, whether we have another "Iron Lady" on our hands. As could be expected, my hon. Friend Greg Clark spoke with great intelligence and passion. He is widely seen as one of the brightest minds within the Conservative party—indeed, something of an intellectual—and I hope that it is not an impediment to his career.
It is a great pleasure to pay tribute to my predecessor, Richard Page, who represented my constituency of South-West Hertfordshire for more than 25 years. He was renowned within South-West Hertfordshire for his diligence, energy, enthusiasm and good humour. He was a very effective and popular constituency MP. Indeed, on a personal note, I can say that he has helped me enormously over the past 18 months or so since I was selected to fight this seat. He has the rare but not unique distinction of having been elected to the House for two different seats both in by-elections—in Workington in 1976 and Hertfordshire, South-West in 1979. A hit rate of two by-election victories in three years is rather impressive for one individual and compares rather favourably with the aggregate total for my party over a number of years. We will not dwell on that.
Richard brought to the House his enormous business experience. He was a very successful business man in his own right and this was perhaps put to best use as a Minister responsible for small businesses in the 1990s. His success as a business man also permitted him to be in the position to enjoy his hobby of horse racing to a much greater extent in his capacity as a racehorse owner. Indeed, his knowledge of horse racing was also valuable to the House in one or two capacities.
I am aware, however, of one occasion when rather unexpectedly and uncharacteristically Richard missed a vote. He was subsequently asked to explain the reason for this, and he said that one of his horses had fallen into his swimming pool. Whatever happens in my career and whatever problems I may cause my hon. Friends in the Whips Office, I assure them that I will not miss any votes due to one of my racehorses falling into my swimming pool. However, Richard will be an enormously hard act to follow. Certainly, over the past few months, I have met many, many people in South-West Hertfordshire who have been very grateful for all that he has done for them as their MP.
The constituency of South-West Hertfordshire has changed greatly since Richard was first elected in 1979. It has retreated from its eastern boundaries, but advanced to the north, taking in the fine market towns of Berkhamsted and Tring. With all due respect to those areas no longer in the constituency of South-West Hertfordshire and that are now in the constituencies of Hertsmere and Watford, the changes have done much for both the beauty and diversity of my constituency, if not its compactness.
The north of the constituency falls within the splendidly named borough of Dacorum, which is the Latin translation of the Anglo-Saxon word for Danish. The borough contains Tring and Berkhamsted and the villages of Wiggington, Aldbury, Long Marston and Wilstone, as well as the town of Bovingdon and the villages of Chipperfield and Flaunden. They are all splendid places and I am delighted to represent them.
Perhaps the most significant historical event to fall within the area took place at Berkhamsted in 1066 when, following his victory at the battle of Hastings, William the Conqueror continued to advance through the country until the Anglo-Saxon nobles finally sued for peace at the site that is now Berkhamsted castle and surrendered to him, perhaps establishing the tradition of diplomatic surrender to the French that some might say continues to this day.
Towards the south of the constituency we fall within the Three Rivers district, the rivers being the Colne and its two tributaries, the Gade and the Chess, all of which meet in Rickmansworth. The area contains what could be described as the Metroland so beloved by John Betjeman. It includes the town of Rickmansworth, the village of Croxley Green, the area of the Moor Park estate and Chorleywood, where I am lucky to live. It also contains beautiful countryside, again on the edge of the Chilterns, and the pretty village of Sarratt. The area also contains, by way of diversity, the ex-Greater London council overspill estate of South Oxhey. We have heard from my hon. Friend the Member for Tunbridge Wells how otherwise affluent areas have pockets of poverty. That is certainly the case in my constituency and South Oxhey is one such pocket in which there are real problems with poverty.
Politically, South-West Hertfordshire has been somewhat monotonous because, during its 55 years of existence, I am delighted to say that it has returned Conservative Members—first, Sir Gilbert Longden, then Geoffrey Dodsworth and then Richard Page. However, Labour Members might be interested to know about the area's contribution to this country's history of radicalism. In the 1840s, the Chartist, Feargus O'Connor, established a community in the area of Heronsgate, near Chorleywood, which he rather immodestly renamed O'Connorsville. The community contained 35 workers' cottages and there was an enormous lottery in which about 100,000 people participated, with the lucky 35 families moving to O'Connorsville. The community was supposed to be a workers' paradise based on the principles of socialism and temperance, but my hon. Friends will not be surprised to learn that as so often happens with utopian ideals, it unfortunately all ended rather badly and the 35 families left rather desolate and hungry five years later. It should be pointed out that during those five years, a public house was established, which was splendidly named "The Land of Liberty, Peace and Plenty", to which inmates could escape for a glass or two. I am glad to say that that still stands and is an excellent public house.
There is much that is good about South-West Hertfordshire and I am pleased and deeply honoured to represent it, but it has its problems. It has problems with crime and antisocial behaviour and I know of serious incidents over the past few weeks in South Oxhey, Croxley and Chorleywood. We have high-value houses, but that means that we have a worrying problem with affordable homes. However, we would strongly resist the proposal made by some of building all over the green belt. My hon. Friend the Member for Basingstoke rightly pointed out the importance of protecting our communities and the green belt.
We have good and popular schools, but they are consequently often over-subscribed, which means that local children are unable to attend local schools. I shall certainly campaign to represent their interests strongly. There is a threat of cuts to our hospital services and in the past few days we have learned more about the financial position of our local hospital trust. I know that I speak for several colleagues when I say that I have great concern about the future of health service provision in Hertfordshire—we certainly have our worries in South-West Hertfordshire.
I shall turn briefly to the Bill. Several hon. Members have spoken passionately and eloquently about the worries that we all have about loan sharks and the exploitation of the weak and vulnerable. There is cross-party agreement on the basic thrust of the Bill, which I certainly share. Much has been said today about lawyers. I, too, was a lawyer, although thankfully I never advised a great deal on the detail of the Consumer Credit Act 1974. I use the word "thankfully" because that Act is notoriously complex and difficult to get one's head round. However, I occasionally advised on the one simple aspect of the Act: the £25,000 limit, which means that most of the Act's provisions do not apply to loans greater than that amount on the grounds that the principles of caveat emptor should apply to anyone who enters into such a loan.
I am conscious that that £25,000 limit is going in principle, although I note that there are two important exemptions. The first is loans to individuals for business purposes. That is a highly valuable service. I have on a number of occasions advised firms that want to perform that task and they would not want to go through the process of licensing. That is an important consideration. The second exemption relates to high net worth individuals, which I understand is a new concept with regard to consumer credit. I am sceptical about how well that provision will work. Having given advice many times on the Financial Services and Markets Act 2000 and its financial promotions regime, which has a similar exemption for high net worth individuals, I know that the exemption has not worked well over the past three years. In certain limited circumstances, it is being reformed in the context of the 2000 Act, and I shall be interested to see how that works out.
Although I accept the reason why the £25,000 limit is going, it is a pity, if only for the sake of the poor lawyer who does not have a detailed understanding of the 1974 Act, because it will make it even more complex for us to advise on. However, I appreciate that claiming sympathy for lawyers is not a particularly useful activity in the House. [Hon. Members: "Hear, hear."]
On a broader point, much though I appreciate the direction that the Bill takes and although there is much agreement between parties, we must always be careful about overregulating. The Prime Minister made a similar point when he referred to the Financial Services Authority in a speech only last week. Regulation can take us so far, but only so far. To outline a personal philosophy, which broadens the point even more, Governments cannot solve every problem. What can solve problems—what is good for society—is giving more power to individuals who have the energy and enterprise to go back to the name of the public house from the mid-19th century to obtain a land of liberty, peace and plenty.
I thank you, Madam Deputy Speaker, for allowing me to speak, and I thank the House for its indulgence in listening.
I am grateful for the opportunity to offer my first contribution to the House in this important debate on the Consumer Credit Bill. I am also pleased to follow my hon. Friends who also made their maiden speeches—my hon. Friends the Members for Tunbridge Wells (Greg Clark), for Basingstoke (Mrs. Miller), for South-West Hertfordshire (Mr. Gauke) and for Rochford and Southend, East (James Duddridge). I was interested to hear the description of Southend by my hon. Friend the Member for Rochford and Southend, East as my birthplace happens to fall within his constituency. I shall probably have a few discussions about Southend with him in the months ahead.
The debate is important. The impact that debt has on so many people and families is profound. While the majority are able to manage their financial affairs effectively and make informed decisions in taking out debts and loans, many, unfortunately, are not. Often it is the most vulnerable members of our communities who are most affected by debt, and hon. Members on both sides of the House spoke about the problem.
Before I address specific points in relation to the Bill, as this is my maiden speech I want to take the opportunity to pay tribute to my immediate predecessors, who served the constituency of Hornchurch well. I am sure hon. Members will agree that they have been a great credit to the House.
John Cryer was elected as the Member of Parliament in 1997. As many Members will know, John can best be described as independently minded, not necessarily following the line of his leadership or his party and being prepared to trust his own judgment and principles where he thought that appropriate and necessary. In the eight years that John served as Member of Parliament, he carved out a reputation in the constituency of being well respected and hard working, a real campaigning constituency MP. That reputation is well deserved. John led many campaigns in support of local residents and community groups, and his approach is one that I intend to follow.
The thing about John is that he is a very engaging, likeable character, and although we may disagree on a number of issues of policy, during the election campaign we always managed a courteous, good-humoured and good-natured relationship. That is a reflection of the character of the man and the way he conducted his politics. On a personal note, I wish John and his family the best for the future, and I am sure that Mrs. Cryer will keep us well informed of his progress.
I should also like to pay tribute to Robin Squire. Robin served the constituency for 18 years, from 1979, and I am pleased to say that he is still serving his local community in his role as secretary to the Cleanaway Havering Riverside Trust, providing grants and other money to many valuable community projects in the area. Although independently minded in a different way, Robin served in government, as a Minister in the Department of the Environment, the Department for Education and the Department for Education and Employment. In the constituency, he was closely involved in a number of issues, particularly the rerouting of the A13 to ensure that it did not pass close to an important part of Rainham village. Robin was also instrumental in framing and developing freedom of information legislation, so he was a good parliamentarian as well as a good constituency MP. Robin has been a very good friend to me over many years, and I value the support and guidance that he has offered to me during that time.
Hornchurch is a fantastic seat to represent, and I am honoured to have been elected to serve the communities of Hornchurch, Elm Park, Rainham and Wennington. The constituency is located on the eastern reaches of London, bordering on Essex, and although it falls within the London borough of Havering, it has a very Essex feel to it. [Hon. Members: "Hear, hear."] I am pleased to see so many hon. Members from Essex here this afternoon. As an Essex boy, I am very proud to take on the responsibilities of serving the area.
The history of Hornchurch can be traced back to Saxon times, when the manor of Hornchurch was owned by successive English kings. The area was reputedly a favourite resort of Edward the Confessor. The origin of the name "Hornchurch", however, is somewhat unclear, with tales of the king hunting a stag near the church and of a bull killing a wild boar that was being hunted by the monarch. I hasten to add that there is not much chance of that happening on Hornchurch high street now. What is clear is that the church remains an important part of the local community, and the parish church of St. Andrew's, rebuilt in 1222, is a striking focal point, as it looks down from the hill overlooking the main area of the town.
Against that backdrop it is hardly surprising that there is a strong sense of tradition. There is also a strong sense of patriotism and national pride, with St. George's day being celebrated across the constituency. That, too, is grounded in a strong historical context. During the second world war, RAF Hornchurch played a central role in defending this country from attack and in securing a victory in the battle of Britain during the summer of 1940. During that period, Spitfires from 54, 65, 74, 222, 266 and 603 Squadrons defended the skies of southern England, and the names of many of the fighter pilots involved are commemorated to this day in a number of roads in the area that made up the old airfield.
It is not just the history; we are also blessed with so many parks and open spaces which help to create the character of the area. Rainham marshes lie to the south-east, where the Royal Society for the Protection of Birds maintains a significant nature reserve. Close by is the village of Rainham, with its conservation area full of character, and Rainham hall, which was built in 1729 and is maintained by the National Trust. From a cultural perspective, Hornchurch is a centre for the arts in Havering—based around the popular Queen's theatre, which provides local access to plays and other productions.
This is however an area with some challenges and some significant problems, too. Although we are lucky to have the Thames running through the southern edge of the constituency, it is in many ways marred by heavy industry, waste-transfer stations and polluting users. A recent study of the possibility of opening up Rainham creek to the north of the Thames for greater leisure and recreational use for local people revealed high levels of phosphates and a severely restricted ecosystem, making redevelopment much more difficult to achieve. Gravel extraction, landfill sites and other recent proposals involving industrial processes have highlighted an urgent need to regenerate and re-characterise Rainham.
That could happen through the redevelopment of the Thames gateway, which covers a significant part of the area concerned, but the vision proposed by the Office of the Deputy Prime Minister of high-density housing along the Thames riverside is not shared by many of my constituents. They are looking for a different type of development in that area. I will certainly be arguing from the Opposition Benches and taking forward in the House a very different vision for that area of my constituency.
Although I have talked about the sense of tradition in the community, what has unfortunately become all too prevalent is yobbish behaviour, which has made the lives of many of my constituents a misery. Statistically, Hornchurch is one of the safest places in the country. Unfortunately, for many of my constituents, it does not feel that way. It angers me that so many people feel that they cannot go out at night because it is not safe to be on the streets after dark.
Most recently, we had the threat of industrial action affecting the District line service covering part of my constituency, after a driver ended up with glass in his eye because somebody lobbed off a bridge a brick that struck his carriage. Graffiti and vandalism are also all too common, and the local police have told me that they have found traces of cocaine and other class A drugs in virtually every public house in Hornchurch. I have little doubt of the need for more police on the streets and a much tougher approach to people who think that they can get away with anything they want. That is simply not acceptable, and I shall be arguing forcefully from the Opposition Benches for the need to tackle such offences.
Some of the problems to do with drugs are driven by despair and a lack of hope. That leads me back to the issues being debated this afternoon. I welcome the fact that this Bill strengthens the protection for debtors by expanding the concept of an unfair credit agreement. My hon. Friend Charles Hendry mentioned the impact that that has on constituency case loads and on the issues coming across our desks. In the short time I have been a Member of this House, I have already seen the impact that crippling debt can have on families and individuals.
A father and son attended my very first surgery to highlight the despair that they felt for the son who was struggling to make ends meet. On benefits and having been unemployed for a considerable period, he was finding it very difficult to make payments on some of this indebtedness. He had taken out a further re-financing loan at a higher rate of interest and, unfortunately, that had merely compounded the problems that he faced. It was moving to hear the story that was given to me by the father, who told me that he had used his life savings to help his son get out of difficulties. He spoke of the stress and strain of that relationship and the effect on his physical health. The narrative made a lasting impression on me, given that the physical and mental distress of that family were evident during the time they spent with me in my advice surgery.
I have no doubt that greater protections need to be afforded to people who are in vulnerable situations, particularly with refinancing transactions of the sort to which I have alluded. I welcome the intentions behind the Bill, particularly the provisions relating to unfair relationships. I share a number of the concerns that have been expressed in terms of the breadth of the definition. That goes to what is meant by an unfair relationship. As a lawyer—[Interruption.] I suppose that I had to declare an interest one way or another in the debate.
As a lawyer, I have always interpreted legislation on the basis that we must have as much certainty as possible. In this instance, we are dealing with advising the debtor or the creditor. As drafted, the Bill relies much on the development of case law. John Battle, who said that that in itself might deny justice to people who have got into problems, made a powerful contribution. I am sure that the issue will be taken further when the Bill is considered in Committee.
I was interested in the right hon. Gentleman's concept of a non-exhaustive list. Perhaps that is something that can be explored and examined in greater detail. There is a consensus on what we are trying to achieve. I fear that the way in which the Bill is drafted may prevent this. I see that the Minister is nodding. I hope that what has been said by hon. Members on both sides of the Chamber will be considered carefully and reviewed as we consider the Bill.
It is an honour and a privilege to serve as the Member for Hornchurch. One of my local priests, the Reverend Bob Love, said to me that hope is one of the most valuable things that we can offer. In a small way, I will try to provide that sense of hope to my constituents, by standing up on the issues that matter to them, by listening to those who think that no one is prepared to be interested in their concerns, and by giving a voice in the House to those who have none. This is the challenge to which I look forward with great relish.
I am not sure what the etiquette is for a Member who has so recently been a maiden himself—I broke my duck only 24 hours ago—in commenting on the maiden speeches of my hon. Friends. Sadly, I was not in the Chamber to hear the speech of my hon. Friend Greg Clark, but I will read it with interest tomorrow. I will certainly purchase the DVD. I have known my hon. Friend for many years and I know that his speech will have been effective and thought-provoking.
I was privileged to be in the Chamber to hear the maiden speeches of my hon. Friends the Members for Basingstoke (Mrs. Miller), for Rochford and Southend, East (James Duddridge), for South-West Hertfordshire (Mr. Gauke) and for Hornchurch (James Brokenshire). My hon. Friend the Member for Basingstoke made an assured and confident speech. She showed a real love and affection for her constituency, which I think will make her an extremely effective representative. My hon. Friend the Member for Rochford and Southend, East made his constituency, particularly the pleasure pier, sound rather like Ibiza. Perhaps he and the son of Mr. Bailey can compare notes. Everyone who serves in the House believes that he needs to shore up his political capital in his constituency, but my hon. Friend is the only Member who must physically shore up his own constituency—£40 million is a small price to pay to keep it intact.
I greatly enjoyed the speech of my hon. Friend the Member for South-West Hertfordshire, although he made a slight mistake in using up a well-worn excuse with the Whips. It clearly worked for his predecessor, so perhaps he should not have discarded it so quickly. I am grateful to him for mentioning a former resident of my constituency, the poet laureate John Betjeman, who wrote beautifully about his constituency, as well the constituency of my hon. Friend Michael Gove and my own constituency. Finally, my hon. Friend the Member for Hornchurch made a brilliant maiden speech that evoked the battle of Britain, the spirit of which he maintained in his determination to fight for his constituents, particularly on the issue of crime. He spoke movingly about his first constituency case, which involved a father and son who had got into great difficulties over debt.
Debt is the subject of the Consumer Credit Bill. Although I have run out of privileges, having delivered my maiden speech 24 hours ago, today's debate gives me an opportunity to make numerous gaffes and to trample unawares over the conventions of the House. I would be enormously grateful if my hon. Friends and other hon. Members would intervene to point out my mistakes. I still regard myself as a layman, and am surprised to find that with the introduction of the Bill the House has gone back to square one. The original Consumer Credit Bill was debated extensively in Parliament before the election was called. It received its Second Reading and completed the Committee stage, which consisted of eight or nine sittings. My hon. Friend Mr. Robertson served on that Committee. After Third Reading, the Bill proceeded to the Lords, yet it is back in the House again. Perhaps one of the great virtues of our unwritten constitution is the requirement that we should go back to square one, but I would break with convention and be so bold as to suggest that we find a fast-track procedure for uncontentious Bills that have been subject to examination, even in a previous Parliament. When a new Parliament is elected everything that the previous Parliament did is forgotten, but in the 21st century we should move on.
Having attended a great deal of today's debate, it is a great pleasure as a new Member to witness a genuine debate. Most of the Bill is relatively uncontroversial, which may be why a genuine debate and exchange of ideas has taken place. I shall focus on two aspects of the Bill on which I have developed my thoughts as I have listened to hon. Members. First, however, I shall make a general observation about what the Bill is trying to achieve. Of course, we need to strike a balance and introduce the right amount of regulation, while allowing the free market to create the products of which consumers wish to take advantage. Individuals must take responsibility for their own actions, but the use of loans and debt effectively to enslave people in debt is reprehensible. There is no moral case for the 300 per cent. loan mentioned by my hon. Friend the Member for Basingstoke. The person offered that loan clearly did not understand it, and it would not be possible to repay the capital. Even in a relatively unregulated free market such loans and products should not be allowed to tempt people.
We have heard a great deal in this debate about the state of the British financial services market and we are fortunate in having a thriving credit card industry. We have heard that there are more than 1,300 credit cards on the market, but I came across a remarkable statistic that says a lot about what is wrong with the financial services industry. Half the people who enter a shop and leave with a store credit card will have had no intention of taking up such a card from the store.
As everyone knows, store credit cards tend to charge a far higher rate of interest than other cards. This very morning, I had a tyre changed on my car. I shall not name the organisation to which I went as it provided an excellent service in changing the tyre. I knew that I might have the chance to speak in this afternoon's debate, however, and I noticed on the cash desk a large glossy sign promoting a store card with an annual percentage rate of 29.9. Under existing law, that may not be an extortionate credit agreement, but it is certainly way above the rate of interest that any sane or financially sophisticated human being would want to pay.
I wish to declare an interest as several years ago I worked as a consultant for Virgin Direct, which provides Virgin's personal financial services; it is Richard Branson's financial services arm. Indeed, I now have a Virgin pension and individual savings account. When I worked for the company in the late 1990s, we ran a campaign to make financial regulation for personal consumer products much more transparent. Britain does not have the most sophisticated financial services industry in the world. The reason why Virgin went into that market is the same as that for which it goes into a lot of markets—it can spot an opportunity. It spots an industry that is complacent and that has forgotten about the needs of the consumer and is not providing innovative products. One of the products that Virgin brought to the marketplace was the current account mortgage, whereby people could pay off their mortgage effectively because it was treated as an overdraft. People could pay it off from their salary, and they could do so much more rapidly than with a conventional mortgage.
I learned from that experience that, interestingly, Australia and New Zealand appear to have a far more sophisticated and consumer-oriented financial services market. I will be interested to hear from the Minister, either at the end of the debate or in the future, what consumer credit laws those countries have. I suspect that they have a relatively straightforward and laudable approach.
One of the campaigns that we ran, which resulted in some Government action, related to the creation of CAT standards by the Treasury. The Treasury has its own sophisticated marketing arm, and the great Treasury brains got together and decided on CAT, which stands for charges, access and terms. The idea was that the "charge" aspect related to making clear the charge for a product, whether it was an ISA or a pension. In order to meet the CAT standard, the interest charge would have to be within 1, 1.5 or 2 per cent. "Access" meant being able to get in and out of a product without being hit by hidden charges, and "terms" meant that people were aware of all the terms that were in the wiring of the product, as it were, or the small print.
We were dealing with very straightforward products such as ISAs and personal pensions. In effect, they were the sort of financial products that the middle classes use, but the consumer could still be hit by hidden charges and find themselves paying far more than they expected. That was the case at, if I can put it this way, the most honest end of the financial services spectrum. It is a matter of some regret to me that the Government did not pursue CAT standards and make more of them. I think that they took the view—I made this point at the beginning of my speech—that there was a fine balance to be struck between regulation and the service of the free market, and that they were concerned about being seen as over-regulating or heavy-handed. If Ministers had displayed more will, however, CAT standards would have taken off.
I have no doubt that the free market has worked. Two legacies of the stakeholder pension, which, again, has not been as successful as it could have been, is the driving down of charges and increased transparency in the financial services arena. The Government do not need to worry too much about intervention to protect the consumer.
By and large, financial products are opaque and sophisticated, but they should be simpler and more consumer-friendly. I support the Government's objectives of making APRs as simple and straightforward as possible, of eradicating small print and turning it into big print and of making sure that such products are not marketed aggressively or deceitfully.
I am especially interested in two issues, the first of which is the interest rate cap. To be honest, I did not have a strong view on the matter before I heard hon. Members debate it this afternoon. As a Conservative, my instinct is to oppose a cap as a regulation too far, but I cannot see how, even in the free market, anyone can justify loans at 300 per cent., 500 per cent. or 1,000 per cent. If there were an interest rate cap, such loans would not be available—a Labour Member made the telling point that they should not be available in the first place because they are a hiding to nothing.
I recognise the dangers of regulation and of setting the financial situation in aspic. If the industry moved on after the introduction of an interest rate cap, it would be left with a relic from the past. I do not want to sound too much like a Liberal Democrat, but I wonder whether a possible compromise is an interest rate threshold above which products must be licensed. That idea may be worth examination, or it may be my second gaffe and one of the stupidest ideas ever heard in this Chamber.
I have been extremely interested in the discussion about clause 19 on unfair relationships, which, I suspect, will be the main focus of debate in Committee. I agree with my hon. Friends that the Government should examine providing extra guidelines, because clause 19 is neither fish nor fowl. On the one hand, it may be too widely drawn because perfectly respectable lenders who have made perfectly responsible lending agreements could be vulnerable to frivolous and vexatious claims in which the courts would be asked to consider whether any part of those agreements is unfair. On the other, as we have learned from the 1974 Act, it may be drawn so widely that the courts are reluctant to intervene, even in cases in which the terms are clearly unfair. I urge the Minister to set out guidelines for the courts on the respective bargaining powers of the relevant parties, on the marketing and making of loan and credit agreements, on the availability of information, on small print, and so on and so forth.
I welcome many other aspects of the Bill, such as the creation of an ombudsman and the need for creditors to provide regular statements to debtors. However, I agree with my hon. Friend Charles Hendry that the four-week check could inadvertently spawn a huge amount of bureaucracy.
One issue that has often come up in my surgery—I do not know whether the Minister will have an opportunity to address it—is that of credit ratings. Many people have been given a bad credit rating by mistake and find it almost impossible to plough through the maze in order to have it removed. It is almost Orwellian or Kafkaesque. One is judged guilty, is unaware that one has been so judged, and when one pleads one's innocence it seems almost impossible to reverse the judgment.
We have talked extensively about people being seduced into bad credit deals, and that is partly due to the lack of personal finance education in our schools. People are happy to debate sex education at the drop of a hat on the radio and television shows on which I frequently appear. We constantly debate the merits of sex education in schools and recognise the importance of our children being properly educated in that regard, yet in purchasing a house or taking out a loan, which are some of the most important transactions that they will undertake—I thought that I would have to choose my words carefully—they enter the financial world as naked as the day they were born. Personal finance education is not as attractive a subject as the other one, but it is extremely important.
Finally, I echo the point made by the hon. Member for West Bromwich, West about the need to deal with add-on products. All too often, a relatively benign product can be sold to a consumer only for them to be almost compelled to purchase a financial product that they do not need and has extremely unfair terms. We must ensure that lenders are not in a position to do that much too easily.
I apologise to the Minister, and to you, Madam Deputy Speaker, for missing his speech. I wrote to the Speaker to say that I could not be in the House at that point. As I led for the Opposition in Committee on the previous Bill, I can perhaps anticipate what he might have said, but I promise to read it tomorrow.
They say some things never change. In my first Parliament, I was frequently the last Conservative speaker—the wind-up speaker, as it were—and in my third Parliament nothing has changed. However, I do not mind this afternoon, because I have been inspired to even greater confidence that the Conservative party will be returned to Government very soon. The reason for my new-found confidence is the quality of the speeches that we have heard from our new Members—my hon. Friends Greg Clark, for Basingstoke (Mrs. Miller), for Rochford and Southend, East (James Duddridge), for South-West Hertfordshire (Mr. Gauke), for Hornchurch (James Brokenshire); and, although it was not his maiden speech, by my hon. Friend Mr. Vaizey, who has spoken for two days running. All were extremely impressive. They spoke with such passion about their constituencies that I am tempted to talk about Tewkesbury, but I think that you would rule me out of order, Madam Deputy Speaker.
I hope that my hon. Friends will forgive me for not going into each and every speech due to the lack of time and the fact that there were so many. I would just say that I am proud to call them colleagues and look forward to working with them all. I am sure that they will make great contributions not only to the Conservative party but, more importantly, to the work of this House. Parliament has become weakened in recent years, sad to say, but I am sure that their contributions will help to restore some sense of proportion
All my hon. Friends mentioned their predecessors, and I too pay tribute to them. I saw Richard Page very recently at Epsom races on Friday, which will come as no surprise to my hon. Friend the Member for South-West Hertfordshire.
As I said, I served on the Committee that considered the Bill and spoke on Second Reading, Report and Third Reading. The issue is of great interest to me because I had Front-Bench responsibilities for it before the general election. I appreciated the Minister's openness and I am glad that he brought the measure back to the Commons as quickly as he could. Although we welcome it, he knows that, in Committee, I tabled many amendments, none of which were accepted—I wish the team who serve on the Committee better luck. The Minister might just slip next time—I accept that he did not on the previous occasion—because some aspects of the Bill could be strengthened.
I always remember the words of my grandfather, who said, "When you're in debt, you're in danger." That is true, but it is also true that some borrowing is necessary. Some businesses have to borrow, and some people have to borrow to get through a difficult time in their lives or perhaps to realise an aspiration. It is important that the opportunity to borrow exists, but, as has been said, indebtedness and defaults on debts are increasing.
Although it is true that much debt is to do with mortgages, many mortgages nowadays are remortgages to cover previous debts on credit cards and so on. We are now in an era when we may make a deal for a five-year mortgage. Let us imagine that we borrow £100,000. At the end of the five years, when we come to renew the mortgage and perhaps look for a better deal, it is unusual to take out another £100,000. Instead, the figure would probably be £110,000 or £120,000 to cover something extra. Although that is linked to the house, the sum does not necessarily cover only the mortgage; it often covers other debts. I therefore do not believe that we should ignore the high level of debt in this country.
The 1974 Act was introduced in a different era—it seems such a long time ago. I was 16 in 1974 and I remember someone bringing an electronic calculator to school. It seemed like a revolutionary machine. Much has changed since then. I therefore welcome the Government's attempts to deal with the new status of consumer credit. Our objective must be to strike a balance between protecting people and not overburdening what are by and large good businesses that provide a good service. We should have available credit but try to ensure that people are not ripped off or end up with more debt than they can manage. That is easy to do.
My hon. Friend Charles Hendry described how he was persuaded to take out a credit card with a £3,500 limit. He has far more resources than me, yet I ended up, against my better judgment when I was not paying attention at—I will name the company—Marks and Spencer, with a credit card with a limit of £7,500. I did not ask for that credit card. I thought that I would get a card that simply gained points so that the next time I went to the store, I would get 10 per cent. off. It was not sold to me especially accurately and it was only when I showed it to my secretary that I realised what it was. The ease with which I got that card struck me as possibly dangerous. It is easy to get into debt and borrow money. It is much easier to borrow than to earn money. We must remember that.
We have heard a little about the lack of education about debt. We rightly warn people of the dangers of alcohol, cigarettes—perhaps I should not mention that campaign—drugs and other things. However, we rarely, if ever, educate people about the dangers of debt. Many years ago, perhaps it could be said that I had more debts than was good for me. It is depressing to go out to work and find that most of one's income goes on paying past bills and debts. It is perhaps even worse when someone in employment takes out a loan, then things go wrong or they find themselves unemployed, and they simply do not have the money to pay off their debts. We really must consider the importance of educating people about debt.
We also need a very good regulatory regime, and I know that that is what the Government are trying to achieve. I am not quite sure that we shall get there as a result of this Bill, although I broadly support it, as I did last time in Committee. However, certain aspects of it need improvement. The main difference in this Bill is the change from a test for extortion to a test for unfairness, which I welcome. However, it is extraordinary that the 1974 Act included a definition of extortion, yet this Bill contains no definition of unfairness. We have moved from defining what is illegal to not doing so, which strikes me as odd. There are many drawbacks involved in that move. Lenders will not know what is illegal but, more importantly, neither will borrowers. How is a vulnerable borrower to decide whether to go to court to get an agreement struck out when he and, more importantly, his lawyers do not know what is legal and what is not? It has been pointed out that, until a number of court cases have established case law on this matter, there can be no certainty. I do not therefore believe that these measures move us forward quickly enough in the right direction.
We have also been told that the Office of Fair Trading will issue guidelines. Well, we heard that in January. At that time, I asked in Committee when that would take place. It is now June and we still do not have the guidelines. Even more worrying is the increased power that the Bill will give to the OFT. I have come across a similar problem before, and the Minister knows the example that I am going to cite. I have an interest in horse racing; I represent the Cheltenham racecourse—the greatest racecourse in the world—which is in the Tewkesbury constituency. The OFT carried out an investigation into the running of the horse racing industry that was potentially destructive, because it simply did not understand the industry.
However, the most depressing aspect of the matter for me, as a constituency Member of Parliament, was that I had no way of affecting the OFT's decision. I had no access to its representatives; I could not go to see them. I could write to them, and I got some bland replies, but I could not bring the case to the House and ask the appropriate Minister to intervene. Actually, the Minister did his best—in fact, I think that there were a couple of Ministers involved, as the matter spanned two Departments—but the issue had already been referred to another body that had the potential to destroy a very important industry. In the light of that experience, I am very concerned about giving the OFT the powers contained in the Bill.
Regarding the lack of a definition of unfairness, it is even worse that the Bill will apply retrospectively. It is not even as though lenders will be able to say, "Well, from now on, we are going to be very careful." They can say that, of course, but in the case of agreements that have already been drawn up, it will be too late. Retrospective legislation should not be encouraged. I know that there will sometimes be grey areas in which it might have to be considered, but I do not think that this is one of them. I also expressed my concern about this in Committee.
I am also worried about companies that make small loans—companies that collect £5 a week from their customers who, by and large, seem very happy with the arrangement. This legislation could be a bit heavy handed for those lenders. By and large, they seem to do a fairly good job and they are quite popular with their customers, and I hope that the new provisions do not cause problems for them. Those small loans can be very helpful to people.
I am also concerned about the problem—I am not sure whether the Bill addresses it at all—of people who get into trouble by borrowing not necessarily from one source at a high interest rate but from a number of sources. Someone who applies for a mortgage is assessed in terms of their income and so on, and they either get the mortgage or not. The same care is not taken, however, when someone applies for a credit card. It is therefore very easy to borrow £2,000 on one credit card, £2,000 on another, and £2,000 on another, which ends up as an awful lot of money. When we considered the Bill, we heard the sad case of the gentleman who committed suicide because of his spiralling debts from 22 credit cards. The fact that he had so many cards is exactly why he got into that situation.
I discussed the ease with which cards are issued with the industry and received the rather bland response, "Well, okay, that is the risk we take". If there are enough people with credit cards, it can afford one or two dropping out—I am paraphrasing what it said—so it does not take as much care on loans of £2,000 as it might otherwise do. That is okay if someone has only one loan of, say, £2,000, but when they have 10 loans, which they have been able to get because of the lack of data sharing, the situation ends up being very serious. I want the Government to examine that.
I am not nearly as sanguine as the hon. Gentleman in relation to mortgaging and remortgaging when lenders are now offering sums equivalent to five times income. That is a matter of genuine concern. My question relates to responsible lending: is not there an onus on the industry, including all the major banks which now find that they have substantial bad debts on their books, to lend more responsibly?
I entirely agree with the hon. Gentleman, and I think that most would do so. As with most legislation, we are addressing the small percentage of cases in which that does not happen. Most borrowers would probably take an interest in what they were borrowing, examine the interest rate and assess whether they could afford it, but some do not, and that is the group whom we are trying to help. That is a difficult balance, and legislation needs to be shaped to take those different circumstances into account.
With regard to the proposal for an interest rate ceiling, I agreed with the Government in Committee and opposed that not only because it is my natural tendency to want to see the free market work, but because practical problems can also arise. The interest rate charged is not the only difficulty—other charges can be levied, such as a charge made when a loan is taken out, a charge made for running an agreement, a charge made for defaulting, and a charge made for sending letters to borrowers who have missed payments. I remember one example of a loan that I had many years ago. The lender claimed that I had missed the end payments, I said that I had not, and I had to take a solicitor's advice. I won the case— I did not owe the lender the money that it was suggesting. The lender, however, wrote to me and tried to charge me £20 per letter. I wrote back to it saying, "That is fine, I charge £30 a letter." Most people would not have my nerve or confidence, and would end up with a lot of debt because of that. My point, therefore, is that the interest rate is not the only factor about which we need to be concerned.
As I said earlier, I would have preferred a guideline—I tried to introduce such an amendment in Committee—under the unfairness test in the Bill perhaps considering prevailing interest rates at the time and the relative strength of the parties. Including such guidelines would not mean that other things could not be taken into account by the courts—the Minister's argument was that the court's hands would be tied if the Bill were too prescriptive. I do not think that that would be the case, however. The court could consider other factors if the wording of the Bill were right.
Maximum interest rates could have the effect of dragging up the average of the interest rates charged, and as the Minister said earlier, could exclude those who need to borrow at the lower end of the market and who take out short-term loans. I know that those tend to be the people whom we are trying to protect, but again it is a question of striking the right balance, and I do not think an interest rate ceiling is the answer. I do not think a Minister—not this Minister in particular, for I trust him entirely, but Ministers in general—should have the authority to introduce such a draconian measure.
A suggestion that I made in Committee does not seem to have been adopted in the new Bill. Under the "half" rule, someone can take out a four-year loan to buy, say, a car, with the option of returning the car after four years and ending the loan altogether. I have spoken to representatives of both sides of the argument, consumers and motor manufacturers, and I am convinced that that degree of uncertainty helps no one. I think that when people can get out of an agreement in that way, interest rates may become somewhat higher than they would be otherwise. The caveat emptor rule should apply, and those who take out a loan for four years should have to pay it off. We must have balance and fairness. I know that the Government consulted widely at the time, and I should like to know whether they have made any progress.
By and large I welcome the Bill, and recognise the need to update the 1974 Act. I hope that the Minister will be a little friendlier to the new Committee than he was when I was trying to get certain amendments past him, because I think the Bill could be improved. It needs a few more teeth in some respects, and needs to be less burdensome in others. It does not quite strike the right balance. Nevertheless, it represents a good step forward, and I wish it and the Committee well.
At the risk of repeating what others may have said already, let me say that I welcome the Bill. The existing legislation is more than 30 years old, and in that time we have seen many fundamental changes in our attitudes in society and to our attitudes to borrowing money and consumer credit.
Credit cards have become a way of life in the United Kingdom. Many of us are quite capable of managing our credit card debts, but others are not. In 2004, Citizens Advice Scotland published debt research entitled "On the cards", which showed a 64 per cent. increase in card debt since 2001, with the average debt in Scotland approaching £13,500. I believe that part of the reason is the order in which credit card payments are made. Customers are given the impression that they are paying off the high-interest debt first, or at the very least are not given the opposite impression. In fact, they are paying off the lower interest first. Most responsible credit card providers would recognise that every customer would prefer to pay off the debt with the highest interest first: that is only logical. The only reason for leaving the high interest to be paid off later is a desire to make more money at the customer's expense.
I do not believe that we can trust the market to reform itself, or to reform the system alone. We cannot rely on those who seek to make a profit from lending money to make and implement changes, and to regulate themselves adequately. I should like the Bill to give the Office of Fair Trading power to impose fines without limit—which the Financial Services Authority already has—and to include a requirement for statements of account to be issued on short-term loans lasting less than 12 months. I should also like to see restrictions on high payment protection insurance offered on short-term loans, which has already been mentioned today.
The Bill's aim, however, is clear. The credit industry is needed to assist those with long and short-term financial needs, and indeed to assist modern life in general. We all use cards and we all use credit. There is a need to modernise and to adapt in order to provide a significantly more responsible market. The credit industry makes hundreds of millions—perhaps billions—of pounds. I doubt whether legislation such as this, or many of the suggestions made by Members today, will damage the industry; in fact, they can only serve better to protect the British public.
With the leave of the House, Madam Deputy Speaker, I should be grateful to respond to some of the comments made in today's debate. It has been of an extremely high standard and we have addressed a wide range of issues of tremendous importance. We have also been privileged to listen to five remarkable maiden speeches from my Conservative colleagues, and I pay tribute to each and every one of them. They spoke with great clarity, passion and enthusiasm, and they are people from whom I know we all look forward to hearing a great deal more.
My hon. Friend Greg Clark, with whom I worked very closely during his time as the head of Conservative party policy, has an outstanding brain and I am delighted to have him as a constituency neighbour. He will be a very doughty campaigner, following on from Archie Norman's work in campaigning for issues in Tunbridge Wells. If my hon. Friend can secure improvements to the A21, that would be of great benefit to Michael Jabez Foster, as well as to my own constituents. My hon. Friend said that on one occasion, Archie Norman described him in three rather damning words, but the three that I would use today are "Excellent—keep going." It was a pleasure to hear the great fluency with which he spoke to the House today.
It was also a great privilege to listen to my hon. Friend Mrs. Miller, who gave us a fascinating insight into her constituency's history. It is a much longer, broader history than most of us have imagined, driving past it on the M3. She will clearly be a tremendous champion of what is best for her constituents, and she will ensure that the best of the past is preserved, while being ready to campaign on future challenges. It is clear, too, from the way in which she spoke how engaged she already is with the issues affecting her constituents.
I also listened with great interest to my hon. Friend James Duddridge. He spoke in the best tradition of Southend—East and West—in being a strong, powerful, clear and determined voice for his constituents, and a resolute local campaigner. I was struck, however, by his evident admiration—almost over-admiration—for all things from Tunbridge Wells. After my hon. Friend the Member for Tunbridge Wells said that he had a peer in his constituency—Lord Mayhew—my hon. Friend the Member for Rochford and Southend, East said that he had a pier as well: one of the largest in Europe. He said that he had something of a love affair with Tunbridge Wells, but I became slightly concerned when he told us that his constituency was gradually slipping closer to Tunbridge Wells, moving across the Thames and into Kent, which we in the south-east would of course greatly welcome. His was a very impressive speech and we look forward to hearing from him further.
My hon. Friend Mr. Gauke also spoke with tremendous fluency and showed a detailed and insightful understanding of the issues in this Bill. He spoke of the dangers of racehorses for Members of Parliament. When the late lamented Donald Thompson missed a vote, he explained that he had been at the races. His Whip, Spencer Le Marchant, who happened to own a racehorse that he was keen to sell, got him out of trouble by selling him a third of that racehorse, which immediately went lame and never won anything again. So my advice is to steer clear of racehorses. But the speech of my hon. Friend the Member for South-West Hertfordshire was extremely impressive and we look forward to hearing from him again.
Of the five of my hon. Friends who made maiden speeches today, my hon. Friend James Brokenshire is the one who actually gained a seat at the election. His was a remarkable result and I congratulate him on a tremendous gain. He spoke with enormous fluency, and with great warmth about his predecessor, John Cryer. Many of us would be very happy to see John Cryer back in this House—albeit in a very different constituency—although that might not be quite in keeping with the Labour Whips' wishes. My hon. Friend will clearly be a very effective campaigner on the issues affecting his constituents.
Those speeches provided us with a remarkable tour of English history: of the Romans in Basingstoke; the Saxons in Hornchurch; the Normans in South-West Hertfordshire; the Stuarts in Tunbridge Wells; and the Victorians in Rochford and Southend, East. I am not quite sure about Wantage, although we are very glad to see the end of the "Jackson" era. All those speeches revealed a group of Members of Parliament who are extremely dedicated to their constituents' interests. That filled me with tremendous hope because I believe passionately that the Conservative party must look more like the country that it aspires to represent.
In the speeches that we have heard today, we have heard from Conservative Members to whom people can relate, whom they will trust and feel are truly plugged into their constituencies and by whom they will be very well represented. I had better stop there for fear of incurring your wrath, Madam Deputy Speaker, or giving anyone the impression that I am setting out my credentials for the leadership of the Conservative party. [Interruption.] I hear the demands, but I shall resist them all the same.
That has always been the case; my allies are always on the Labour Benches.
What we have heard during the debate has been tremendous support for the Bill's principles but, nevertheless, a great deal of concern about some of the details. Virtually every hon. Member who has spoken called for more details, starting with John Battle, who made a remarkable speech and to whom tribute was paid by hon. Members on both sides of the House.
What is clear is that we come to the Bill from different perspectives. We are looking for different aspects of the detail to be provided because we may be ultimately looking for different things to emerge. The Minister therefore owes it to us to provide us with that detail as the Bill goes for consideration in Committee, so that we can clearly see what is in his mind. I simply do not believe that the Government are dealing with a blank piece of paper on this issue.
I know the way that the civil service works too well to think that the Government have not got those things worked out. If we start to come up with thoughts in Committee, they have got reams of paperwork already prepared, which they will be able to use to explain why certain bits should, or should not, be included. We want the Minister to provide more detail in Committee, so that we can fully understand the Bill.
There has been a great deal of talk, too, about the need for transparency and to help consumers understand what they are signing up to. My hon. Friend Mr. Robertson spoke about that with a great deal of eloquence. It is going beyond the call of duty that, having led for the Opposition in the debates on the previous Bill, he has taken part again today. Perhaps he would like to serve again on the Standing Committee. He would be extraordinarily welcome.
My hon. Friend also said that credit deals are often extremely complex and confusing. People think that they are signing up for one thing but end up getting something else. Any hon. Member who has tried to buy a car recently will realise that choosing the type of car, the engine size, the colour and the interior is only the easy part; it is when one comes to working out how to pay and all the ramifications of the huge range of options available that it gets truly confusing. What all hon. Members want on behalf of consumers is a system whereby they can really see what is proposed.
I listened with great interest to what was said by my hon. Friend Mr. Vaizey. I particularly agree with him about the need for personal financial education. We are letting young people leave school and education without an understanding of the deep and detailed financial issues that they will be required to deal with extremely soon after leaving. We owe it to them to give them that sort of education, and I hope that the Minister will talk to his colleagues at the Department for Education and Skills to ensure that they are aware of that.
Concern has also been expressed about leaving such issues to the courts. Again, that issue was raised by Mr. Bailey. I share their concern that many consumers are terrified of going to court, that their experience of court has probably been negative and that the idea of taking on a major financial institution is the sort of stuff that they believe happens in John Grisham novels, not something that ordinary people want to face in their ordinary lives.
We need to take as much of the detail away from the courts as possible and put it in the Bill, so that the consumers and the credit institutions know what they are dealing with. My hon. Friend the Member for Rochford and Southend, East was very eloquent in talking about the dangers of leaving the courts to decide the details and in highlighting the need for caution in making the Bill retrospective.
There has been much discussion about interest rate caps by the right hon. Member for Leeds, West, and by the hon. Members for West Bromwich, West and for Carmarthen, East and Dinefwr (Adam Price). Norman Lamb, whom I was remiss in not welcoming to his brief at the beginning of the debate, was quite right that the worst cases where consumers have been let down occur when people have borrowed from multiple sources and no one has checked whether they can pay back the money. That is a bigger issue than the level of interest rate caps. I am convinced that introducing interest rate caps would not help those in greatest need. There is no doubt that those who lend to those people would start to withdraw and people would borrow from unscrupulous, illegal or unchecked lenders. The most vulnerable consumers would end up losing out.
Caps would also threaten to close down whole sections of the credit industry—for example, pawnbrokers. Most of us would not think it unreasonable if somebody in need of cash took their television set to the pawnbrokers and left it there in return for £50. If they went back a month later and retrieved it for £60, that would for many people seem to be a good way of evening out their cash flow. It is actually an APR of more than 1,000 per cent., so if we start capping APRs at an arbitrary level, we will close down an extraordinarily important part of the credit industry.
An undercurrent through the debate has been the general anxiety about the levels of debt in our society. That point was mentioned by the hon. Members for North Norfolk and for Hastings and Rye. The latter spoke eloquently about the survey by the Tomorrows Peoples Trust, an outstanding organisation with a good reputation on this issue and for training young people. He had interesting ideas on how the problem should be stopped and how we can stop people taking on debt that they simply cannot afford.
This is not just an issue for people on the lowest incomes. Debt now affects people in all parts of the country and of all income levels, as my hon. Friends the Members for Tunbridge Wells and for Basingstoke made clear. It is particularly an issue in the south-east where the cost of housing is so high that people are forced to take on extra levels of borrowing and debt to meet their bills. That is particularly an issue for young people.
The hon. Member for Carmarthen, East and Dinefwr spoke about how, week on week on average, people spend beyond their means—£20 a week, £1,000 a year. This is a massive problem and one of which we must be aware.
The measures in the Bill enjoy our support, but we believe that it can be improved in Committee and that the Government need to be much bolder if they are going to tackle debt-ridden Britain. They need to wake up to the growing crisis of a country in ever-greater debt and the evidence that people are struggling more and more to keep up with their repayments, as shown in today's press reports. Debt is growing by £1 million every four minutes; it has grown by £80 million in the course of this debate. Some £1.1 trillion of debt is a massive millstone round the necks of families across the country. As we have heard in the debate, that often ends in misery and sometimes tragedy.
The Government need to start by putting their house in order. They are the biggest serial debtor of the lot, with the Chancellor the natural heir to Viv Nicholson, who won the pools and went on to spend, spend, spend until there was nothing left. Although the Chancellor can put up taxes, and he does, to cover his spending, the public do not have that option. In just eight years, debt in Britain has doubled and the Government need to be less complacent and more willing to recognise the extent of the threat.
To continue, however, in the vein of constructive dialogue in which the debate has been carried out, I recognise that this is an important Bill. We support it. However, it can be improved, as every Member who has spoken has pointed out. We look forward to working with the Minister in Committee and hope that he will be willing to take changes on board. It may be another 31 years before we have the chance to review the legislation again so let us get it right now.
With the leave of the House, I wish to respond to what has been an excellent debate. Ministers often say that it has been an interesting and excellent debate, but do not really mean it. However, I can say wholeheartedly that this has been an excellent debate. We have had 16 speeches and numerous interventions on the Front-Bench spokesmen from Members interested in a subject that affects all their constituents. That is an important point. The House is often criticised for not being relevant to the issues of the day that affect people's lives, but I hope that the people who have watched the debate will know that all the Members involved, whatever position they take, are keenly aware of the issues surrounding consumer credit.
I pay tribute to the maiden speeches that have been made by the hon. Members for Tunbridge Wells (Greg Clark), for Basingstoke (Mrs. Miller), for Rochford and Southend, East (James Duddridge), for South-West Hertfordshire (Mr. Gauke) and for Hornchurch (James Brokenshire). They were quality speeches, and although I do not want the same things for the future of Conservative party as Charles Hendry does, I know that the constituents of those Members will be well represented by the way in which they operate in the House in times to come. I also congratulate my hon. Friend Mr. Brown on making a maiden speech, in the sense that his constituency's boundaries have changed.
I remarked earlier to my hon. Friend, who is acting as my Parliamentary Private Secretary, that the maiden speeches reminded me of my maiden speech and that my by-election victory was on
We cannot be complacent about examining what is happening to individuals and their circumstances, which is why the Government wanted to introduce the Bill. However, the Government have to work with industry and stakeholders to ensure that they present effective legislation that can work. The consumer credit White Paper showed the need to reconsider legislation, owing to the 30-year interval since the Consumer Credit Act 1974, but it was important to move forward with the consent and support of the industry and stakeholders. Those stakeholders will be heartened by today's debate, because there has not been a party political divide between people's viewpoints. It was clear that people felt, as Mr. Bacon indicated, that some practices, which are perceived to be outrageous approaches to vulnerable people, are immoral.
As the Minister responsible for the Bill, I wanted to bring it back to the House quickly, given that we only just failed to get it through in the last Parliament. The Bill fell because there was inadequate time to discuss it in the Lords after the announcement of the general election, but I wanted to keep the momentum going. Those of us with experience of such matters, whether we are lawyers or involved in the industry, know that people try to move in different directions when consensus breaks down, so it becomes difficult to keep momentum going. It is important that we keep the momentum going, because the Bill and its principles will affect vulnerable people, in particular.
The House will have the opportunity to consider the Bill in Committee—I am sure that the Whips will be happy about the competition for places on the Committee. I hope that we will be able to negotiate with the House authorities so that we can get the Bill through its Commons stages as soon as possible and it will go to the other place in the autumn. We will try to get its implementation worked through as soon as it receives Royal Assent. However, as hon. Members have said, the implementation requires a balance between fair regulation and working with the industry to ensure that information technology systems and other matters are addressed, and ensuring that consumers are protected.
It is clear that there is some disagreement about the unfair credit test, so I am sure that we will have a detailed debate in Committee about why we prefer to take a broader viewpoint on what the test should be. Mr. Robertson has raised the role of the Office of Fair Trading with me on many occasions in the context not only of horse racing, but of the principles of the Bill. Following the Competition Act 1998 and the Enterprise Act 2002, the Government were asked to move away from being involved in the detail of competition issues so that the market could be allowed to determine matters, so it is ironic that we are now being asked to ensure that we curb the OFT's powers. A balance must be struck. The OFT reports each year to the Department and the Secretary of State. The powers that we are giving it on licensing are vital because it is important that those who lend money are the appropriate people to do so.
On the unfairness test, does the Minister accept the point made by John Battle, that many individuals involved in such cases do not want to get anywhere near court? If so, what does he have to say to him? It is one thing to say that an alternative dispute resolution is available, but people—in particular those at the lower end—do not need a neutral arbiter, but need someone to stand up for them against these wicked people?
Again, that has to be seen in the context of what the Government are trying to achieve across the piece with the work in the Treasury on financial inclusion. I take the point about the onus being on responsible lending. Notwithstanding what the hon. Member for Wealden said about civil servants having the answers and Ministers following the line put to them, I was struck by the quality of some of the interventions.
I undertake to consider what can be done on credit issues, but the alternative dispute resolution is important and should not be put to one side—nor should the distinction that enables courts to consider such things. The existing extortionate credit test is not appropriate and has not worked, but we are moving in the right direction. Our proposals should be considered against the background of working with the industry and stakeholders to achieve something that is workable. If all that happens is that the industry sticks its foot out because it does not want to participate, it will find ways around the legislation. The idea is to go forward with as much consensus as possible. However, as I said, I shall consider things in great detail, before the Bill is in Committee, if that is possible, or while it is in Committee—certainly, before we discuss it on Report—to see what we can do for the most vulnerable people at the lower end of the market.
We used statutory instruments on consumer credit legislation to introduce transparency in the way in which agreements are drawn up. We also introduced the loan shark projects in Birmingham and Glasgow. I am happy to say that they are working well. So it is not just a case of what is in the Bill. The wider context has to be considered as well.
Again, we have heard the arguments for and against interest rate caps.
I am convinced by the evidence, especially that produced by Bristol university, on the negative impact of a cap on interest rates. However, I have attended lively debates in which there is still a bit of give and take on that. Evidence from Europe and other places suggests that there are ways to get around some of those negative impacts. Is the Minister still prepared to discuss the issue? Will he look again at including a power that can be used should the evidence change?
Hon. Members who have worked with me know that I am prepared to consider all aspects of the problem. I told Adam Price that we would look at evidence from elsewhere, or at evidence that is in addition to the information that we have gathered. The opportunity to do that is while the Bill goes through its various stages.
My right hon. Friend John Battle is an expert on such matters. I enjoyed his contribution immensely, even if he is from Leeds, which is close to Bradford and we do not always enjoy the best of relationships. His speech gave an idea of the problems faced by people on lower incomes who are at the bottom end of the market and are hit by illegal moneylenders, who prey on them with violence and in other ways when they cannot pay back their loans.
We need to put the Bill in context. Consumer credit can be a useful tool to consumers if handled in the right way, with a balance between it and saving. The Bill is necessary. Thirty years is a long time for a piece of legislation to be in force, and it has now become out of date. We will work hard in Committee. With excellent contributions by Members on both sides of the House, I am sure that we will get it right. I undertake to ensure that we listen to them and discuss the merits of all amendments tabled in Committee. I hope and know that the House will ensure that when the Bill becomes law, it will be the right piece of legislation to meet the concerns of the industry and consumers. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.