It is a great pleasure to follow Chris Evans, who has given an excellent introduction to the debate. I pay tribute to colleagues on both sides of the House who have done so much to shine a light on some of the more irresponsible practices that have sadly become all too commonplace in this industry.
My remarks today will focus on what I think we would all agree has been a regulatory failure in this section of the market, and I want to refer to a Public Accounts Committee report which some hon. Members present today were involved in producing. We looked at the regulation of consumer credit earlier this year, and we reached the firm conclusion that the Office of Fair Trading had been found wanting in getting to grips with tackling some of the more unpleasant practices of high-cost lenders. The message that I would like Parliament to send out today is that we are now at a crossroads with the regulation of this sector. The Financial Conduct Authority is preparing to take responsibility for it from the OFT, and bearing in mind that the OFT has been so slow in getting to grips with this, I want us to send a clear signal that we all expect the FCA fully to use the regulatory tools at its disposal really to give the sector challenge, and to be fleet of foot in intervening where we see poor practice.
The OFT has had a number of tools that it has failed to use, and there are clear breaches of rules. There are powers under the unfair contract terms regulations that could easily have been used to tackle some of the more unacceptable levels of fees and penalties for default, which are probably the most acute cause of additional cost to anyone who takes out these loans. Equally, every credit provider is required to follow responsible lending rules. As the hon. Member for Islwyn outlined in some of his examples, the advancing of credit to people in such situations was far from responsible lending. The OFT has the power to withdraw credit licences, but it has failed to use it, resulting in irresponsible lenders and unscrupulous companies exploiting the vulnerable and laughing all the way to huge profits. That is not acceptable, so Parliament needs to give a clear signal about what we expect the FCA to do in future.
Much of the debate in the past has focused on how we control some of the costs. As I have said, I believe that the unfair contract terms regulations give regulators the power to intervene to control some of them. However, we have a real problem with the consumer credit directive, which has prescriptive rules about how firms advertise costs of credit with reference to APRs. The reality is that APRs are meaningless in this sector, because we are talking about loans that are advanced for a short period. The real issues are how much the credit will cost and the transparency of additional charges. I have seen one example of a payday lender who charged £25 for each reminder letter sent when a customer defaulted. That would not be caught by any regulation regarding APRs. It is an unfair contract term and a clear exploitation. The powers exist to control such activities. The PAC stated explicitly that we wanted the misleading APR rules to be ditched and replaced with clear guidance on and responsibility for publishing the cost of credit in amounts repayable in cash.
I also associate myself with the hon. Gentleman’s comments on credit unions. As we all readily understand, the only reason customers access credit in this way is because they cannot get it from anywhere else. Unfortunately, mainstream lenders are not interested in providing small loans for short periods. However, we have to be careful about prescribing additional regulation for the sector, because if people cannot get credit from it they will go elsewhere and that will send them into the hands of some very unscrupulous people.