I congratulate my hon. Friend Chris Evans on securing this debate about an increasingly problematic issue. He said that he had raised it in his maiden speech back in 2010, and I am sure that since then he has contended as strongly as many other Members that the problem has become worse rather than better.
Many Members on both sides of the House have campaigned tirelessly on behalf of their constituents who have suffered at the hands of legal loan sharks. My hon. Friends the Members for Makerfield (Yvonne Fovargue), for Blaenau Gwent (Nick Smith), for Hackney South and Shoreditch (Meg Hillier) and for Glasgow North East (Mr Bain) all deserve special mention, as does the dogged determination of my hon. Friend Stella Creasy, who has just returned to the Chamber, and who has kept this issue high on the political agenda.
I commend my hon. Friend Paul Blomfield for his private Member’s Bill, and for his superb contribution to today’s debate. The Bill attempts to provide a regulatory framework for high-cost payday lenders, and I shall say more about it later. I agree with Tracey Crouch that the Government should adopt some of its provisions.
This has been a fantastic debate. There is clearly a consensus, not only in the House but among key organisations representing consumers and the debt support industry, that action is needed, and needed now. Mr Walker was right to point out that there was cross-party support for such action. The issue has also been prominent in another Parliament, the Scottish Parliament, where Kezia Dugdale MSP has run the very successful Debtbusters campaign in an attempt to pressurise the Scottish Government to use their powers to assist. Unsurprisingly, they have so far refused to do so.
The pace at which the high-cost credit industry has grown is extraordinary. That is no doubt largely due to the cost-of-living crisis—my hon. Friend the Member for Glasgow North East referred to the desperation that drives people to food banks, and my hon. Friend the Member for Blaenau Gwent mentioned the problems of insecure employment in his constituency—but it must also be attributable to the attraction of the industry to countries with weak regulatory environments. Indeed, some commentators have described the regulatory environment in the United Kingdom as a “payday loans haven”. My hon. Friend the Member for Makerfield drew attention to the failure of the voluntary code in the sector.
It is a struggling economy, with ever-rising prices and stagnating wages, that is driving people towards high-credit borrowing just to meet the demands of everyday costs. Last year, Which? found that 60% of people who were using the high-credit market were doing so for everyday purposes. That shows how acute the cost-of-living crisis has become. There is a market for access to such short-term credit, as we have heard in the debate, whether that be for a broken washing machine or for the commuter whose car breaks down. Those problems cause unexpected shocks to families’ budgets and they can be helped by the short-term credit market, but as my hon. Friend the Member for Walthamstow said, many companies make most of their money through a small percentage of people who are forced to become repeat customers. It is becoming clearer that vulnerable people are being targeted and exploited by this industry; they find themselves drawn into a spiral of debt and are using such lending for everyday purposes. Many Members have told of their constituents’ experiences in that regard.
The harsh reality of the pressures of rising living costs is highlighted by the rising number of people using the StepChange Debt Charity. It has reported that more than 30,000 people contacted it in the first six months of 2013, which is the same number as for the whole of 2012.
While the high-cost credit crisis has deepened, month by month this Government have failed to take any meaningful action, and it is clear that consumers need protection now. The Minister with responsibility for the industry has played her part in that failure, despite the cross-party consensus which has been mentioned. Her payday loans “summit” in July, which she called the industry to attend, was slammed as a sham by many and what it actually achieved is unclear.
I ask the Minister to answer the following questions when she responds to the debate. Did she lambast industry executives for their continued flouting of their own good practice customer charter, as Citizens Advice has shown? Did she challenge industry executives, whose advertising spend rose by 26% in this year alone? Did she even ask them about capping the total cost of credit? If the industry is doing all the positive things it tells us it is doing, why will it not give the Government and the FCA its lending data so that we can determine whether or not we can trust what it says? We urgently need to put in place sensible and measured policies which will protect people. If we do not do that, ever more people will be affected.
Let me talk about some of the issues raised by Members today and by my hon. Friend Paul Blomfield in his private Member’s Bill. First and foremost, we must have a cap on the total cost of credit, including charges and defaults. In her wonderful speech, my hon. Friend the Member for Walthamstow highlighted how that could be done. Last year, we proposed an amendment to the Financial Services Bill to give the new FCA the clear powers to do that, and it is a shame that the Government rejected it—only for the Lords, including the Archbishop of Canterbury and other Cross Benchers, to persuade them that it was the right thing to do.
Although the Government are reluctant to over-regulate in the credit marketplace, they must lay down to the regulator some clear foundations about what they are looking to do. First, there must be a crackdown on irresponsible lending, for which an affordability framework needs to be put in place. The FCA also needs to introduce measures to stop small debts becoming large debts. That should include addressing roll-overs and a limit on default charges. They should also consider a cooling-off period, as my hon. Friend the Member for Wansbeck said. The FCA needs to collect some transactional information, too, so that we can be clear about how the market is operating. The Government and the FCA should introduce a live database as well, so that payday lenders can do proper credit and affordability checks in order to protect borrowers. That is the only way we can overcome the hurdle of the industry being accused of not doing proper affordability checks. There should be strong warnings on all advertising so that customers are aware of the risks and costs. My hon. Friend the Member for Makerfield said that her children had been told to boo when the adverts appear on the television; perhaps we should add those boos to the adverts themselves.
Borrowers experiencing difficulty should be automatically signposted to a free debt advice service. The continuous payment authorities should be reviewed, too. The Minister must tell the FCA to look at that, in particular with regard to the high-cost credit industry.
This has been a wonderful debate, but I am sorry we have not had time to explore some of the issues in greater detail. The Minister has said:
“Payday lenders are on notice—if they don’t take action to fix their problems they will face further complaints and further sanctions.”
Can she honestly say to the House today that she is doing everything in her power to make sure that the market is regulated properly? I would challenge her on that, because I do not think that she is doing that. The House has spoken clearly—not just in this debate, but in many debates on high-cost credit over the past 18 months to two years—and it is time the Government acted.