Orders of the Day — Consumer Credit Bill

Part of the debate – in the House of Commons at 1:00 pm on 9th June 2005.

Alert me about debates like this

Photo of Charles Hendry Charles Hendry Shadow Minister (Higher Education and Intellectual Property), Deputy Chair, Conservative Party 1:00 pm, 9th June 2005

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.