I beg to move,
That leave be given to bring in a Bill to make provision for a maximum limit for interest rates to be prescribed;
and for connected purposes.
This Bill would cap interest rates just above the Bank of England rate for store cards, loans and credit cards. During my research on the Bill, I was shocked by the charges that store cards and credit companies make. Burtons, Dorothy Perkins or Woolworths, for example, make a charge of 29.9 per cent. With an Argos payment card, interest can go up to 222.7 per cent. Someone who spends £1,000 on a Principles store card and makes only the minimum payment will need 15 years to clear that debt. Sadly, it is not just store cards that are the problem; companies that provide loans are even more outrageous. Provident Personal Credit charges 183 per cent. APR.
Here is an example of what it means in practice. I have an excellent leaflet provided by South Lanarkshire Credit Union Network, which details exactly the consequences of a rate of 183 per cent. It identifies two characters, Mrs. Rush and Mrs. Wise. They both borrow £300—Mrs. Rush from the Provident and Mrs. Wise from the local credit union. They each pay back £9 per week. By week 36, Mrs. Wise has paid off her loan, and it cost only £12.50 in interest. Mrs. Rush has another 20 weeks of payments to make, and by week 56 has paid off her debt, but at a cost of £204 in interest.
Sad to say, Provident is not the worst in this field. Last Sunday's News of the World identified a company called Log Book Loans, which charges 437 per cent. APR. A person who borrowed £1,500 from this company would be forced to pay back up to £4,180 over an 18-month period. Even Log Book Loans is not top of the interest rate chargers chart. That title belongs to a company called Payday UK and Early Payday Loans, in Windsor. It charges an eye-watering 1,355 per cent. APR. Those companies specifically target workers who run out of cash before the end of the month. Those individuals have nothing to live on until the next pay day, and, crucially, they have no other means of borrowing.
What all those companies have in common is that they target people in financial difficulties who in many cases have nowhere else to go. The banks, which we have now taken partly into public ownership, are charging interest rates of 29.9 per cent. Frankly, that is totally unacceptable. My Bill would limit the interest charges at a fixed rate above the base rate set by the Bank of England. I believe that a fair rate would be 5 per cent. above the base rate. I have had a lot of cross-party support, and other individuals are a bit concerned about that level. I want to stimulate a debate, but I believe that that is what the rate should be.
It is interesting to look at what other countries do. It is reported in The Guardian this morning that in America the average credit charges are between 9 and 11 per cent. As the base rate has been trimmed in America, so have the credit interest rates. While carrying out my research on this Bill, I did not find one company in Britain that has cut interest rates on its credit charges or store cards—
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The hon. Gentleman says that they have gone up, and that is the case. It is absolutely scandalous.
In Germany, credit interest is regarded as an abuse if a company charges twice as high as the market interest rate. In Denmark, where there is no fixed rate, a lending company was taken to court for charging 33 per cent. APR, and it was forced to reduce the rate to 16 per cent.
The time has come for the Bill. I welcome the my right hon. Friend the Prime Minister's comments at Question Time that he would bring in such companies and call them to account. I think that he should do more. We need to introduce legislation to cap interest rate charges. We need to highlight the cost to individuals of taking out a loan with the sort of companies and shops that I mentioned. We need to promote credit unions and the benefit that they bring to local communities. It is sad to report that the Scottish National party Government have abolished the ring-fenced money that the Labour-led Administration had introduced to promote and encourage credit unions. That is a disgrace.
This place needs to tell the people of Britain that, during difficult times, we are on their side, and to send the message that, during the credit crunch, it is time to crunch the credit charges.
Question put and agreed to.
Bill ordered to be brought in by Mr. Jim Devine, Mr. Mohammad Sarwar, John Bercow, Keith Hill, Mr. Brian Binley, Mark Durkan, Ms Katy Clark, Mr. Tom Clarke, John Barrett, Mr. David Anderson and Jon Cruddas.