It is a pleasure to serve under your chairmanship, Mr Robertson. I congratulate Stella Creasy on securing the debate, and I congratulate Pip on taking the sensible decision to fall asleep during his mother’s speech. He had a nice long sleep, as we can all observe, which was perhaps a sensible decision by him. None the less, we heard a powerful contribution from the hon. Lady, most of which I strongly agree with. She clearly set out for us some of the challenges that we now face.
I of course welcome the fact that the Government are looking to regulate the buy now, pay later sector through the Financial Conduct Authority. I am pleased to see so many buy now, pay later companies falling over themselves, begging to be regulated—“Regulate us, please!”—but they might not be quite so happy when we get to see the detail. That will be the test of the buy now, pay later sector: not its good intentions now, but what it makes of the regulations at the end of the process.
I am concerned that the consultation fails to capture the true nature of the consumer detriment, focusing only on the absolute value of the goods but failing to capture how the market is changing with this type of credit. That is strange, given the wider policy environment. It was the Woolard review that first took us down the path of regulating buy now, pay later, but it had much more to say about improving access to lower-cost, short-term credit for the more financially vulnerable. Both issues need addressing in parallel, not separately, and I see no evidence—I might be wrong—that the Government are adequately progressing the wider agenda of the Woolard review on improving access to low-cost, short-term credit.
I know that some people out there believe that the BNPL type of product should be banished out of existence and is a fundamental evil that drives demand for fast fashion. It is a very easy target to strike. However, I represent a relatively deprived part of the country and believe that my constituents should not be denied access to the short-term, low-cost credit that more affluent constituents take for granted. That should not be one more example of the poverty premium that people face in their daily lives. At the moment, the least well-off are disproportionately penalised by the poverty premium, which sees them subjected to higher insurance premiums and offered a much smaller range of affordable credit products, if any at all exist for their particular financial circumstances.
That is my first reservation about the consultation: it views the consumer detriment as relatively small because of the low value of the goods overall. We know that, on average, low-income families have only £95 in savings, so even a single late payment fee can have a devastating impact on a household’s financial circumstances. We need to view these financial transactions in the same way as we see credit cards, loans or mortgages. The last time I had to remortgage, a few years ago, it was a six-hour epic, as every single line of my expenditure was gone through in great detail and I had to justify virtually everything that I spent.
It is the percentage of someone’s disposable income, not the overall amount, that matters when making such decisions, and assessing affordability must be based on maximum transparency between the buy now, pay later provider and the customer, but also between providers. As the hon. Lady said, people cannot rack up multiple debts with Klarna, Laybuy, Clearpay and all the other new companies that are coming on the market. We need to move the focus to the behaviour of the borrower over the lifetime of their financial activities, looking at all their borrowing rather than having just a single test for their credit risk or a single affordability assessment in isolation. It cannot just be a credit check that, if they fail, makes their ability to obtain credit in the future that bit harder, because that is the opposite of putting them on a pathway to more affordable credit. People might be able to afford a loan at a particular point in time but then be hit by a family bereavement that changes their financial situation. Allowing lenders to see a wider picture of spending habits requires much speedier progress on open banking than we have seen so far.
I am also interested in examining the future of the sector. The consultation on regulation cannot just meet the market as we see it at the moment; it must meet the market that we will see in years to come. Consider the issue of rent to own, on which both I and the hon. Member for Walthamstow attended debates well before 2015. That sector went on a long journey, from the relatively innocuous ubiquity of Radio Rentals, which many of our parents used to buy their first TVs back in the late ’70s, to the more problematic practices of BrightHouse and PerfectHome in the 21st century. We know where that journey ended. I still walk past the boarded-up BrightHouse shop on Abingdon Street in the centre of Blackpool, which I named the most dangerous place in Blackpool because it was sucking people in and trapping them in long loans of high-cost credit.
We are already hearing that buy now, pay later is being used not just for pizza but for the weekly food shop. That should really give us pause for thought. Higher-value goods are now being bought through buy now, pay later. It is not just fashion, which we automatically link with Klarna and the advertising that we see. I read in the paper just this week about a new market entrant, humm, from Australia, that specialises in much larger consumer goods—something that makes me go “humm” when I wonder whether that is desirable.
We must also think more about the retailers, as the hon. Member for Walthamstow said. They are as much the beneficiaries of this market as are the buy now, pay later providers themselves. The whole business model works only if it increases sales for the retailers; otherwise, why would they bother paying the buy now, pay later provider a percentage fee? That fee is what justifies this form of market.
If that becomes our default payment mechanism in a cashless society—which I am afraid that, as we debate here, we seem to be sleepwalking into—we may need to look again at how we monitor the internet shopping experience and the customer journey through a website. Will regulations that were framed around the idea of purchasing clothing work for goods that could cost thousands—much larger consumer goods and consumer electronics? Where do the retailers sit in all of this? There is a real commercial dynamic at work here.
I was speaking to ASOS just last night, at a reception in the Churchill Room. They said that they had worked with Alice Tapper of GoFundMe, a noted campaigner whom I am sure the hon. Member for Walthamstow has spoken with at length. She has worked with ASOS to redesign its website to ensure that it is a friction-filled—not frictionless—journey for the consumer, so that there are multiple occasions when consumers are asked to pause and consider what they are about to purchase, and so that buy now, pay later is not the default, pre-ticked option on the checkout form. Those are all very simple measures, but they are not measures that the Treasury can effect. They come under the Advertising Standards Authority and other types of regulation. The consultation on regulation will not solve everything; there are other agencies that have to take other steps.
None the less, there are better solutions out there, and the Government are committed to them—not least no-interest loans. I am at risk of reading out a paragraph from my previous speech, when the Minister was here and I did not get an answer, so let me have another go, if he is listening. I am obsessed with reforming local welfare assistance schemes so that people can access the white goods that they need. The Government have a very good idea: no-interest loans. Providing those should not be rocket science. The original idea came from Australia—the same place from where humm is now arriving on our shores, and where Good Shepherd Australia has been operating micro-finance for many years. Surely, to introduce them here must be cut-and-paste. Indeed, some of their regulations on buy now, pay later are a model of what we are planning to do here. Rather than building a programme from scratch, why not try to move faster by looking at what works in other jurisdictions? This matters, because the cost of replacing white goods is terrible for so many families, who fall into debt as a consequence. We need only listen to the Liverpool-based End Furniture Poverty campaign and look at the pilot schemes that Fair4All Finance is launching to tackle the concept of appliance poverty.
The hon. Member for Walthamstow also mentioned FinTech, perhaps in the sense that it is almost a risk that you never know what it will come up with next. Equally, I think that FinTech is actually part of the potential solution. There are companies out there and emerging—Auden Financial is one that I happen to know quite well—that are looking to use FinTech to provide the low-cost, short-term, ethical credit that I think has to be the end goal. We all talk in this place about FinTech. We all swoon, almost, at the wonderful thought of what a fantastic business it is. I am not sure that we as politicians always understand it terribly well, but we need to keep asking how we can work with that sector so that it does good and not bad.
There will always be disruptors, and I want to disrupt the business of high-cost, short-term credit; that is what I want to disrupt. There is a gap in the market for a new provider to come along and do things differently. No one should be denied the opportunity to own things. Everyone should have the ability to choose how they spend their money and to choose how they access a form of credit that is regarded as affordable to them and does not place them in greater difficulty. At the moment we are not in that position, but there are multiple ideas out there. Restricting access to buy now, pay later, properly regulating it, and treating it like any other form of credit and not least in a way comparable to how we treat consumer detriment from credit cards, has to be one step along the path. There is a much wider agenda that the Treasury needs to embark on to embrace the whole Woolard review, not just one small paragraph.
I commend what the Minister is doing. Like the hon. Member for Walthamstow, I know that he is on the side of the angels. But it is the job of those on the Back Benches to say, “Go further; go faster. Do it yesterday.”