Thank you for that guidance, Mr. Gale. That is not something I had divined from the pattern followed on Bill Committees that I have served on since I came to the House, but there we are. There is always an opportunity to learn from the wisdom of the Chairman on such occasions. The only problem with that situation, Mr. Gale, is that we are not quite sure what the Minister will say, but sometimes I find that I end up saying it for himor her, depending on which Minister it is.
Clause 27 tackles quite a serious problem relating to the availability of credit to households in this country. We need to remember that British consumers have a personal debt equal to the personal debt in France and Germany combined. I am told that there are more credit cards than people in the UK. I came across someone last week who had 13 credit cards, which I thought was quite a lot.
That is a phenomenal number. I think we would all accept that access to credit is a good thing; it helps even out some of the ebbs and flows in income and expenditure. However, a situation can arise where the access to credit is too easy, and it leads people who perhaps are not fully conversant with their finances to a situation in which they increase their take-up of consumer credit. The area that has always bemused me is credit card cheques, which are the subject of clause 27. I have to confess that it took me a long time to realise that they were cheques. When I received them through the post, I assumed that they were simply a marketing device. I now know that they are not just a marketing device but access to credit. I assumed that the cheques were just a marketing gimmick, and I do not think that I am alone in having thought that.
I suspect that there has been a reasonably high degree of fraud as a consequence of some of those marketing devices. The cheques are seen as another cheap and easy way for people to get credit. In its written submission to the Committee, Which? said on credit card cheques:
These tend to have higher APRs and handling fees, offer less favourable repayment conditions, are unpopular with consumers and have been blamed for increasing fraud. We believe it is right that consumers should only receive credit card cheques if they have specifically requested them.
It went on to say that it welcomes
the measures to achieve this.
I suspect that the measure in the Bill has support from across the House. It is interesting that even the publication of the Bill and the clear intention of the Government to legislate on the issue has not stopped credit card companies sending out credit card cheques. In fact, my wife received some at the weekend, which we duly shredded.
As my hon. Friend says, the cheques came just in time for Christmasclearly a time to encourage my wife to spend money. It was right to shred the cheques and to keep a firm grip on domestic finances. There are limits to my powers, however. That demonstrates just how wedded the credit card industry is to the idea; it knows that credit card cheques are about to be banned, but it still continues to use them.
There were expectations outside the House that the Government would go further than they have done in the Bill when it comes to credit card cheques. My hon. Friend the Member for Tatton (Mr. Osborne) said on Second Reading that he agreed with Which?, which has said:
we are disappointed that the Government has not taken further measures against irresponsible lending in the Bill. There is a clear need to avoid a return to the pre-credit crunch days and the wide-ranging consultation recently published identifies important issues.
Such details were highlighted in the consultation published by BIS on consumer credit. Which? stated further that
The delay in publication has resulted in a missed opportunity and we are concerned, given the stage in the Parliamentary cycle, that the chance to act will be missed.
The Prime Minister is aware of the issue of consumer credit; he said:
we are determined to do our bit...when we see hard-working, hard-pressed people being buffeted about by a storm not of their making.
We were under the impression, as I think Citizens Advice and Which? were, that the Government and the Prime Minister had pledged, at a meeting on the culture of credit earlier in the summer, to take the earliest opportunity to ban unsolicited credit card limit increases. There is some surprise that that is not covered in the Bill, and that all we see is a minimum payment, as it were, towards redeeming that pledge.
Other issues to do with tackling the growth of credit include points relating to minimum payments, unsolicited credit increases, the re-pricing of existing debts and the order of payment. Unfortunately, the consultation that the Department for Business, Innovation and Skills has proposed will close on 19 January, the week after we finish our work in Committee. If only the usual channels had been more generous, in terms of the amount of time allowed for scrutiny, we in this place would have had some time to scrutinise the outcome of the consultation, and the Government would have been able to table additional amendments to reflect the outcome of the consultation. Will the Minister clarify the Governments intention on redeeming their pledge to legislate against unsolicited credit limit increases, and on the other areas subject to consultation in the BIS White Paper?
The hon. Gentleman is probably right that there are a number of individuals who have been sent unsolicited credit card cheques in the post and do not recognise what they are. They are, in effect, the same as current account cheques, but with some important differences. There is a danger that people do not take them seriously enough to ensure that they dispose of them in a safe and effective way. There is certainly some anecdotal evidence that unsolicited credit card cheques have been used by individuals who obtained them fraudulently.
Credit card cheques are provided by many credit card issuers. They have a similar appearance to ordinary bank account cheques, and once used, they appear on a credit card statement in the same way that an item purchased with the card, or a cash withdrawal made using the card, does. However, they attract a higher rate of interest than card purchases, do not have an interest-free period, tend to attract a handling feeusually at 2.5 or 3 per cent. of the amount of the chequeand do not offer protection under section 75 of the Consumer Credit Act 1974, whereas a purchase made with a card does. Under that section, as hon. Members will know, the creditor is jointly liable with the supplier in the event of a problem with the goods and services.
Every year, huge numbers of credit card cheques are sent to customers. Some 292 million credit card cheques were distributed in 2008, of which around 95 per cent. were unsolicited. Less than 1 per cent. of the cheques sent out were used, but there are signs that they are being used by customers in financial distress. Survey evidence from uSwitch in November 2008 suggests that 23 per cent. of the people who use credit card cheques use them to transfer cash into their current accounts; 16 per cent. paid utility bills with them and 7 per cent. used them to consolidate debts. One credit card issuer actually suggests in the information that accompanies its cheques that consumers can use them to pay utility bills.
There is a risk and, as I said, some evidence that vulnerable consumers are using the unsolicited cheques to get themselves into higher debt. The high costs often associated with such cheques, and the fact that those costs may not be fully appreciated by many customers, can make the situation worse. uSwitch found that 86 per cent. of consumers surveyed could not identify the correct fee charged by their provider, and even the most informed and sensible consumer can find it hard to master the complex terms and conditions attached to credit card cheques. The purpose of the clause is to ban a practice that can tempt consumers to increase their borrowing when they may already be in financial distress. We are not proposing to ban credit card cheques entirely. Used wisely, they can provide useful flexibility for the consumer, but we want to put consumers in the driving seat, which is what clause 27 does.
I appreciate that proposed new section 51A, as inserted by clause 27, would impose pretty severe restrictions on credit card cheques for consumers, but why does proposed new section 51B provide a total exemption for businesses? Businesses, particularly small businesses, could also get into the very difficulties to which the Minister referred with regard to consumers. In a sense, they could be running on a credit card, which is not a great way to run a business.
Although unsolicited credit card cheques have been identified as a problem for consumers, we do not believe that there is a similar consumer protection justification for restricting their use by businesses. That is why proposed new section 51B exempts credit card cheques for business use from the prohibition. If my hon. Friend has evidence that there is detriment to businesses as a result of the practice, obviously the Government would want to consider it at a future date.
I do not propose to go through all the details of the different subsections of the clauses. The general principle of restricting the use of credit card cheques is welcomed in all parts of the House, and that is important.
On the points made about unsolicited credit limit increases, we are looking at the issue as part of the review of the regulation of credit and store cards. We are considering a number of options, including a ban on the practice, or requiring customers to opt into credit limit increases. The review is still out to consultationuntil 19 January 2010and final recommendations will be published in spring 2010.
Does the Minister share my view that it is rather depressing that so many financial institutions are so opposed to the concept of responsible lending and to providing a sensible level of service to their customers? I am deeply concerned that we are having to bring forward such legislation. It seems to me that many of the banks might have picked up the messages, coming out of Government and the Opposition parties over the past couple of years, that such practices are unacceptable. The banks should not need to have to comply with legislation to do away with them.
I have some sympathy with what the hon. Gentleman says. The situation is patchy. Some lenders take a more enlightened approach to their activities than others when it comes to this area. We always need to make sure that we have effective regulation and that throughout primary legislation we take powers, when we believe them necessary, to ensure that the consumer is properly protected. That is why we are taking action on credit card cheques in the Bill.
As I indicated, we are consulting on unsolicited credit limit increases and on minimum payments. In many ways, we would have hoped that action in such areas was not necessary, but there has been significant evidence that consumers are getting themselves into difficulty as a result of some of the enticing offers that seem to be there from those that want to lend them money. We need to make a judgment as to whether we need to act in the future to prevent some of the practices.
All the written and spoken evidence that we received from consumer organisations was that while credit card cheques affect a small number of incredibly vulnerable consumers, unsolicited credit increases affect a much wider range of consumers. According to the evidence put before us, such increases have been important in the explosion of credit in recent years, which we are now trying to deal with.
I take the Ministers point about the survey currently being carried out, but will he give the Committee an assurance that if the evidence that comes into BIS suggests that something should be done in any of those areas, he will, at an appropriate timethe timing will be criticalbring forward amendments at a later stage of the Bill to incorporate such measures into the legislation?
In a moment. My hon. Friend the Member for Edmonton is right to point out that there has been a tendency for many people who have had their credit limit increased to spend up to that limit. Many people now want to reassess their financial circumstances and perhaps take different actions. In the past, the practice enticed them to get into higher levels of debt than they now feel comfortable with. That needs to be addressed.
To explain my caveat, I should say that sometimes in Government we have to act immediately, on a limited or non-existent evidence base. There are some situations when the evidence is there and we are too late. The danger is that we are always running to catch up. As a real aside, on the basis of the strict evidence the Government would not have introduced the car scrappage scheme; indeed, Treasury officials advised us not to. Our decision to do so was based on our belief that it would have a galvanising effect on confidence in the market. That has proved to be the case. In terms of the evidence of past schemes, it would not be something that we would do.
I had better not dilate any further on those points, Mr. Gale, other than to say that there is cross-party support for what we doing in the clause. We are looking at going further in other areas of consumer protection. As hon. Members will be aware, there are other consumer measures as part of the Bill and we will discuss them in the new year.