Motion for leave to bring in a Bill (Standing Order No. 23)
I beg to move,
That leave be given to bring in a Bill to regulate the advertising on television and radio of credit and debt management services; and for connected purposes.
In other words, the Bill is designed to get legal loan sharks off our screens. Credit is something that few of us are able to live without. Whether we want to buy a car or a house, go to university or get married, most of us use loans of one form or another to enable us to do it. Debt in itself is not a bad thing. The problems start when debt becomes unmanageable—when loans are taken to repay other loans, and when the percentage of our income spent on debt creeps up and up until we are unable to service our debts.
Loans are often taken out following a change in circumstances, such as a relationship breakdown or the loss of a job, or to tide us over while times are tough. Loans are frequently taken out in response to emergencies such as a broken washing machine, the need to travel to a funeral, or unexpectedly high bills for facilities such as heating. The idea that people in unmanageable debt are always simply spendthrifts who should have known better is not correct. All but the very wealthiest have debt. Most of us either escape it or manage it reasonably successfully, but being in unmanageable debt is a problem that eclipses all others.
We know that owing money that cannot be repaid leads people to depression, suicide, domestic violence, alcohol misuse and deeper debt. Loan companies know that as well, and go to great lengths to make their products appear easy, everyday, and the perfect solution to an all-encompassing problem. Darlington citizens advice bureau tells me that the number of people applying for payday loans in Darlington has been increasing, and that television advertising is responsible. Such loans come with interest rates of about 2,500% for Wonga and 5,000% for Payday First. There is little disagreement about the expensive nature of that type of borrowing. The total cost of credit is well over 20% of the value of the loan. A consumer survey run by MoneySavingExpert. com suggests that a 20% cap on the cost of credit would be welcome.
The Bill does not seek to ban high-interest loans, although I think that that would be a very good thing. It seeks to prevent such loans from being advertised on television and radio. Television and radio advertising are the most effective forms of advertising available. Campaigns that use them consistently out-perform those that do not. Ads are now cheaper in real terms than they were in the 1980s and, on the whole, more successful. Advertising works. That is why restrictions are placed on the advertising of alcohol, and why the advertising of cigarettes on television and radio is not allowed.
We know that advertising generates demand, and that that is why companies pay large sums to advertise. We also know that other countries are getting serious about trimming the worst excesses of the credit and debt management industry, with maximum interest rates being introduced in the United States and parts of Europe. That is leading to an increase in high-interest lending in this country, with many US firms looking to the under-regulated UK market for their next growth opportunity.
By preventing the advertising on television and radio of loans that cost more than 20% of their value, we will remove the main means by which lenders target people on low incomes or on benefits, convincing them that a high-interest loan is appropriate, desirable and easy. In such ads, expensive lending is given the appearance of something that everyone is doing. That is classic nudge theory: make us believe that everyone is at it, and we are more likely to join in ourselves. That is fine when applied to recycling or exercise, but not so fine when we are talking about exploitative loans.
The Bill also proposes restrictions on debt management services. We all know the ones I am talking about. Even those of us who do not admit to watching Jeremy Kyle have seen them: “Repackage all your debt into one easy monthly payment.” Again, the ads make it look so easy. What they do not mention is the high cost of the debt restructure, or the fact that the same service is available from free Government and charitable sector organisations which are not in a position to pay for expensive television advertising. The eventual result is a spiral in which hefty charges are imposed on consumers who are in a desperate position. Those charges produce profits and pay for further advertising, enticing more people into using the service.
Statutory regulation, over and above the very basic licensing and supervisory regime presided over by the Office of Fair Trading, is vital. Over-indebted vulnerable consumers are acting under stressful conditions, without the time or inclination to shop around. There should be adequate protection from rogue providers of debt advice, so that huge numbers of already indebted consumers are prevented from falling into even greater financial difficulties. Estimates suggest that in 2010, fee-charging providers of debt management will cost heavily indebted consumers between £207 million and £275 million in fees alone.
At the end of September, the OFT published the results of a review of compliance with its debt management guidance, which providers are meant to abide by. The OFT found that non-compliance was widespread and had reached an unacceptable level. Misleading advertising was the most significant area of non-compliance—in particular, failure to disclose that a fee is retained by the business, and misrepresenting debt management services as being free when they were not.
My Bill proposes that adverts for debt management services should have to make their charges properly clear in all their advertising, and further that they should make it clear that alternative sources of free advice are also available, such as Payplan and Citizens Advice.
The Government have confirmed that Jobcentre staff will soon start issuing vouchers for people to exchange for emergency food supplies. The scheme will begin next month and roll out nationally in April. It is surely wrong that those same people who are being assisted by the state in this way are allowed to be deliberately targeted, misled and exploited.
By preventing high cost lenders from advertising on television and radio and by changing the way in which debt management advisers promote their services, we can start to make this sector less ordinary. We have given high cost lenders and debt management services an easy ride in this country. By curbing the worse excesses in their marketing, we reduce their ability to mislead increasing numbers of people into thinking that what they have to offer is good value, easy and commonplace.
Question put and agreed to.
That Mrs Jenny Chapman, Yvonne Fovargue, Nic Dakin, Justin Tomlinson, Heidi Alexander, Valerie Vaz, Tom Blenkinsop, Dr Stella Creasy, Sheila Gilmore, Dr Thérèse Coffey, Mr Robert Buckland and Tracey Crouch present the Bill.
Mrs Jenny Chapman accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday 4 March 2011, and to be printed (Bill 129).