This has been an interesting debate. I congratulate my hon. Friend Chris Evans on calling it and all hon. Members who have spoken.
Owing to time constraints, I will not comment on most of those speeches, but I think we are all clear that there is a world of difference between those of us in this place, as well-off MPs, able to access interest-free credit cards or get loans at 5% or under these days, and many of our constituents, who have no savings and no credit record or a poor credit record, for whom the options are limited. It is important that there is a sector that can lend to people who have a crisis when the washing machine breaks down or, typically—I hear this a lot in my constituency—when they have to pay for a funeral, which is a huge expense, and have nowhere to go. We need to ensure that the system works.
I want to touch on some of the concerns, as I see them, and what needs to be done; to highlight some of the organisations in my constituency and how they work to achieve things; and also to pick up on the point that Justin Tomlinson made about the disgraceful withdrawal by the major financial institutions of products for poorer, riskier borrowers.
It is now harder even for people with good ratings to get products from the banks, as many of my local businesses will testify, while those who do not have a good credit record cannot get products from anywhere. We need to be careful, because the vilification of payday lenders means that there is a huge reputational risk for mainstream lenders entering the quick, short-term loan market. We have to think responsibly and in the round about how we act and how we ensure that there is something out there for those who will be a higher risk and will therefore face a higher cost. There is a place, as we have all agreed, for short-term lending of fixed sums at high rates.
We heard on the Public Accounts Committee about how Provident works. For many people, it is a psychological thing. A nice woman—they are nearly all women—comes to the person’s door and asks for the money. It might be £185 to borrow £100, but it never goes up: even if someone misses a payment, there is no penalty. Many of my constituents—they are often the same sort of people, and rely on meter keys—do not want the surprise or worry of a bill they are not expecting. I agree with the hon. Member for North Swindon that there is a worry about secondary selling, but that certainty and direct contact is important.
It is interesting that ABCUL—the Association of British Credit Unions Limited—has sent round a note about interest rate comparisons, which says:
However, it is not really right to make the comparison, because if the credit union went round to people’s doors in person, there would be an increase in the cost and the interest rate would be much higher than the 26.8% quoted. We need to be careful when comparing products to be aware that there are different products out there. I agree with all colleagues that the focus on APR and percentage rates is confusing for people. We need to change that—I will touch on my suggested changes at the end.
My hon. Friend Yvonne Fovargue mentioned BrightHouse, which has a really invidious system, providing high interest on credit via purchases and then tacking on insurance. Indeed, the insurance costs for one item of furniture or a television can be as much as the insurance for a whole household, yet it is sold in a shop-front environment in places such as Dalston Cross shopping centre. Worse still, BrightHouse is often recommended by social landlords. When someone moves in and says, “But I’ve got no furniture,” they are often told—by people who are not qualified to give financial advice—“Oh, why don’t you just go down to BrightHouse?” They think they are giving shopping advice—often, probably in good faith—but have no idea that they are indebting their tenants for a long time to come.
On the high street in Dalston, we have every type of high street lender that could be imagined, from the legitimate banks to the loan sharks, who do not exactly have shop frontages, and the swish, nice-looking frontages of the Money Shop, Oakam and so on. I want to touch on Oakam, which has an interesting business model that is different from many of the other high street lenders. It is based on an American model, which is fairly newly arrived in the UK, and works with people who are themselves fairly newly arrived in the UK who are trying to build a credit record or set up a business, but do not have access to credit from mainstream institutions. Typically, someone from Poland—we have a lot of Poles in Hackney—or people from parts of west Africa, having arrived in the UK, will spend six months building up their credit record at a higher interest rate than many others, but then move to the high street bank over the road to get a loan. Oakam provides a service that people need—it is at a higher interest rate, but people know what they are doing. Oakam says that a lot of its customers are clearly building their records.
Fair Finance is a social enterprise that gave evidence to the Public Accounts Committee. It has a base in Hackney and provides face-to-face loan advice, but has taken nearly nine years to reach break-even point. One of Fair Finance’s worries is that if interest rates were capped, it would have to provide loans to people at higher levels and further indebt them, so if someone came wanting to borrow £5,000, it might have to call it £10,000 to cover their costs, because it costs a lot. Fair Finance has a model that trains advisers to sit face-to-face with someone, talk them through all their financial issues and ensure they can manage the loan and the repayments. Fair Finance feels that talking face-to-face is one of the reasons why it gets the money back.
We have talked a lot about credit unions, too. As a Co-op MP, it saddens me that too often we see credit unions failing. Having to save before a loan is one issue. In Hackney, our credit union collapsed. We are now working with the Tower Hamlets credit union, which has taken over the space. One of the challenges was that a lot of people were basically using the credit union as a bank account for their benefits. They never really saved and were therefore never able to take out a loan, although they had no great interest in taking out a loan either. The service quality was poor, and too often the credit union was badly managed and there was a lack of advertising, as is the case for other credit unions. We need to work with the credit union sector to get it to step up to the mark. If credit unions are to compete with flash shops such as the Money Shop, which people who can walk into and get good quality service—whatever the issues with the products—they need to remember that people will shop around.
I want to touch on what needs to be done and to refer colleagues to the Public Accounts Committee report, which Jackie Doyle-Price highlighted. I will not repeat them, but its recommendations clearly show that there is an issue with a lack of regulation from the regulator. The work of the regulator—we now have a new regulator, so there is some hope in this—needs to focus more on consumer protection, ensuring that those with a licence to lend have the right protections and checks in place, so they do not over-lend and over-extend people. There should be a limit on roll-overs. There is sometimes talk as though everyone is always rolling over all the time. There are legitimate payday lenders that limit roll-overs. We need to recognise that there is a range of providers.
There also need to be proper affordability checks. People should not be able to walk down the high street and get three payday loans on the same day. The whole point about the speed of many payday lenders is that they can make online checks quickly, so the system needs to be updated. It is interesting that one’s own credit record is sometimes not updated very quickly, so there is a basic IT issue. Continuous payment authority is an invidious system and needs to go. We also need a change from APR to clearer costs. These are all things that need to be done.
Let me end on a cautionary note by quoting Mark Hannam, the chair of Fair Finance:
“Those who campaign on this issue need to decide whether they want a well run, well regulated market with a few dominant providers (who are very profitable); or a highly diverse and less well regulated market, with lots of smaller providers who are under less pressure to treat their customers well. From the consumers’ point of view, the former seems a better outcome.”
When we look at regulation, we need to be careful that we do not throw the baby out with the bathwater.