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Affordable Credit for People on Low Incomes

Volume 650: debated on Wednesday 5 December 2018

[Sir David Crausby in the Chair]

I beg to move,

That this House has considered the provision of affordable credit for people on low incomes.

It is a pleasure to serve under your chairmanship, Sir David, although I hope it will be not just a pleasant time, but a very productive one. We are anxious to leave plenty of time for the Minister to reply because we want, and hope, to make progress with the debate. I address him as an hon. Friend, because in this debate I am drawing information from Feeding Britain, a charity that he, I and other MPs from different parties set up. This debate on the provision of affordable credit for people on low incomes draws on the experiences of groups around the country that are part of the Feeding Britain network. I thank those involved in the network, whose information I draw upon, but particularly the parents and grandparents who have provided information for this debate.

As I gave him much of the information beforehand, the Minister knows that there is far too much to cite in this debate from people in the Feeding Britain network who want to have their say. I will instead focus on an everyday story of Provident. I do not know whether it worries about Salisbury, but Provident is putting out these leaflets in the Wirral, personally addressed, and on the front are pictures of a little girl and the words, “The look on her face”, “Decorating grandad” and “Visiting loved ones”, all playing on the feeling of exclusion that many poor people feel all the time, but especially at Christmas.

Behind those leaflets there is a carefully targeted business plan, because certainly Provident stepped up its activities with the beginnings of the roll-out of universal credit. Officers of Provident were knocking on doors with application forms in one hand and fistfuls of money in the other, asking whether people wanted to sign up or needed a loan, knowing that while we still have difficulties with universal credit today, we certainly had mega-difficulties when it was first rolled out in Birkenhead.

I congratulate the right hon. Gentleman on securing this important debate. Particularly with people facing problems such as universal credit, does he share my concern that a growing number of people—I think it has gone up by 300,000 in the last year—rely on credit to pay for everyday essentials? That is hugely unsustainable, and we need to look at mixed alternatives.

Indeed; we will try to draw the Minister on that. Part of the leaflet concerns short-term loans, saying that the APR is 535.3%; I hope Members of Parliament know what APR—annual percentage rate—is. I will not press the question, but the Minister has one degree from Oxford and one from Cambridge, so I wonder, if we were looking at a £300 loan and had to pay it back within three months, what the loan would cost and what the rate of interest would be. I am not going to pause; I will give the answers. It is one of those very easy quiz games, but a horror quiz game, because if the repayment is over three months, Provident wants £429 back at an annual interest rate equivalent to 1,557.7%. That is just one example. Constituents borrowing £350 and paying it back over 12 months have to pay back £655.20.

I commend the right hon. Gentleman for all the hard work he does and the high regard in which he is held in this House when it comes to poverty issues for people across the whole of the United Kingdom of Great Britain and Northern Ireland, not just in Birkenhead. I thank him for that. Does he agree that there must be a viable alternative to the payday loans he is referring to? Could the credit union, which is growing in my constituency and has been extremely helpful to people on low incomes, be the safe and regulated alternative, bearing in mind that it encourages responsible lending and responsible saving hand in hand?

I totally agree with that. I suggest that there is no silver bullet. Clearly, credit unions have a part to play, but they are not as thriving in Birkenhead as they are in others parts of the country. Therefore, we need a whole strategy of policies, so that the geographical chance of life neither protects people nor leaves them vulnerable and unprotected. If someone has a really good, strong credit union and they are a member of it, that is good news, but if there is no credit union, or if their pattern of behaviour does not easily fit into what the credit union requires, it is difficult for them. I want to draw the Minister on that later in the debate.

The leaflets that are now going out in our constituencies claim that there are no late payment fees. I am pleased to be able to say that, unlike other companies that lend people money when they are extremely vulnerable, there is no evidence at all that the people coming for repayment come with baseball bats to enforce that repayment. But of course, Provident has another strategy, so it does not have to do that. To use another example, one of the volunteers in the Feeding Britain network tells us that one of her friends who got close to paying off her debt with Provident was immediately offered another loan. If someone has problems repaying, they are offered other loans, so the loans mount up and become very substantial, and if they are towards the end, Provident tries to make it part of their working-class economy that they should have loans, by suggesting that they should take another loan.

I thought that, before I come to what I would like to see as part of the Government’s strategy, I would talk about the hard sell. One mother went on to the website to see what the loans prospects were. Having merely gone on to the website, she said that she was being called up eight times a day until she took out a loan. There is quite a hard sell here. As well as picking on areas that are vulnerable because universal credit is being rolled out and picking on the vulnerable areas across the country in periods such as Christmas and the summer holidays, there is a real danger that merely inquiring about a loan means that people then get the hard sell.

What about the strivers? For example, we had two people in work and two children who borrowed £100 from Birkenhead, and they were anxious about paying bills and feeding those children. They ended up having to pay back a few pennies less than £500. We have also seen the Scarlet Pimpernel effect in Birkenhead. If someone googles loans, Google throws up, in the first instance, those loan companies that are likely to cost them the most to borrow from. Will the Minister look at whether there is a case for saying that Google should display what we could all agree are the best companies to deal with, not those with the highest charges?

I very much enjoyed serving, up to the time of the general election, on the Select Committee chaired by the right hon. Gentleman. He has great passion in this area and has just made a really interesting point. What would concern me about online advertising is this. Probably these companies are simply purchasing through the Google Ads algorithm; I imagine that there is very little way for them to have the sort of control described, but it is an extremely good point that the companies charging the most interest will have the biggest budgets to pay for Google ads and so on, which almost inevitably means that they will come near the top. We should look at that; it is a very good point.

That is a really good point, and the Minister is nodding, so I know that we are going to get action on it. I am immensely grateful for that intervention.

Let me take another website—Doorstep Loans in Birkenhead. It aims specifically at single parents. It says, “We understand your position. We can help you through a loan.” It says to those who are unemployed, “We understand your position and the particular problems you have. What about a loan from us to help there?” It says to those with a bad credit score, “What about a loan to you?”, knowing that they cannot get one from elsewhere. Those with disabilities are also lined up for special treatment.

Let me switch to Leicester, which has also given us some information. One pensioner took out a loan to help to buy Christmas presents. She is now repaying £100 a month for that loan. That is hardly a good prospect for her—it is a very large part of her pension. Derbyshire, too, shows a really worrying trend. Provident went to one of those houses that are known to have young people in supported accommodation, who are very vulnerable, and managed to sign up every person in the house for a minimum of a £100 loan.

Putting fires out is part of the Minister’s job, but so is thinking creatively about the future, as he has always done on Feeding Birkenhead, so may I put before him the idea of a citizens’ bank? It would not be a silver bullet; it would be part of many other things. If we had asked poor people to help to design universal credit, none of them would have said, “I work to a five-week month or a four-week month for payments.” They would have said, “This benefit needs to be designed for me, which means daily payment or weekly payment.” I very much hope that we could take things a stage further and include poor people in designing the bank, so that it would be a bank that they wanted. I hope that we can pick up the hon. Gentleman’s idea, which was in the Budget, about interest-free loans. I hope that we could sign up the Department for Work and Pensions so that users of the bank would make agreements for loans that they paid back in a manageable way—paid back, with their agreement, from benefit—so that there would be a minimum element of bad debt.

As we all know, Wonga said that it had to charge 5,000% because of the bad loans that it had. It had many bad loans precisely because it was charging 5,000%. I think that if we could eliminate from the system people who cannot pay and the few who will not pay, we would have a very different, and viable, model. My plea to the Minister today is this. Might people who are interested be able to come and talk to him further on the idea that I have described? Might we also not exempt the banks from their responsibilities? Many of my constituents have problems because of the way that the banks behave. The situation is pretty bad: the banks give large sums of money—thank God—to their foundations, and those foundations give out money to projects to undo some of the damage that the banks themselves cause. I therefore hope that this is the opening of another chapter on how we get decent banking systems that fit the moral economy of life for working-class people, rather than roughing them up.

Order. It is not normal, in a half-hour debate, for hon. Members to speak unless they have sought the permission of the mover of the motion and the Minister. Is the Minister happy for other Members to speak at this point?

Thank you, Sir David. I also thank my right hon. Friend the Member for Birkenhead (Frank Field) for securing this debate to highlight some of the appalling and exploitative lending practices that target many of the most vulnerable people in our society.

Despite the welcome demise of big payday lenders such as Wonga, people without enough to get by remain over-exposed to manipulative lending practices. A leading debt charity found that an estimated 1.4 million people used high-cost credit for everyday household costs in 2017; the figure was up from 1.1 million in 2016. High-cost credit keeps many trapped in a vicious cycle of indebtedness just to make ends meet. It is a scandal that those who are least able to afford it are left with no choice other than to accept the highest lending rates.

With in-work poverty on the rise, the Government must do more to reform the broken credit model and tackle the persistent debt spiral into which many working families have fallen. As I have witnessed in my constituency of Warrington South, credit unions constitute a commendable community initiative that seeks to prevent other people from falling into the trap of high-cost borrowing; but without substantial Government support, such alternatives struggle to address the problem fully. Often, low-income households are unaware of or unable to access affordable credit provision in their local area or nationally.

The Government must commit to a comprehensive long-term programme to expand the provision of community lending to ensure that those struggling to make ends meet can access alternatives to high-cost credit. At present, the Government appear simply to be making matters worse. I have been contacted by several constituents who have had to take out loans as a consequence of the Government’s disastrous implementation of universal credit—a flagship Government social security policy. Provision of access to affordable credit is a potential lifeline to many.

I hope that the Government will begin to take a proactive approach to solving this critical issue. It involves not just payday lenders like Wonga, but banks and building societies. There is a huge difference between interest rates for someone borrowing £1,000 and someone borrowing £20,000. The interest rates are so different: they range from 20% to 6%. We need to do something about that and ensure that provision is appropriate and affordable for people in need.

Thank you for letting me speak, Sir David. Do not worry: I promise I will be quick. I rise simply, and possibly at my own risk, to disagree with my right hon. Friend the Member for Birkenhead (Frank Field)—I admire him immensely for his work on poverty and perhaps, given the time of year, he can be the ghost of Christmas yet to come for the Minister—because there is a silver bullet in this circumstance. All of us deal with people in our communities who are struggling because there is too much month at the end of the money and are borrowing to put food on the table, to keep a roof over their head and to put petrol in their car to get to work. They need us to recognise the lessons of payday lending—the lessons of those interest rates. It is not about the decimal point; it is about hooking people into debt.

I know the Minister knows this in his heart. I know he recognises that payday lending is not the only spectre hanging over Christmas for people this year. Indeed, in our country now, people are better protected when taking out a payday loan than when they are using many of the other forms of credit. My right hon. Friend talked about Provident. Provident takes many incarnations in this country. Vanquis credit cards are pushed in my local community; Vanquis is also owned by Provident. Credit cards in this country are the new form of unaffordable debt for so many. The rates of interest, especially on the credit cards targeting people on a low income or with a bad credit history, lead them into higher levels of debt than they would get into with a payday loan. Guarantor loans rip apart communities and families as people get into debt and then have to tell someone else, who has guaranteed the loan, that they have got into debt. The companies are chasing two people at the same time for the same loan.

All those examples, all those scenarios, are things that we could stop if we learned the lessons of payday lending. Wonga may not exist now, but the industry carries on in this country. It has gone from 400 to 150 companies, but the point is that it is not pushing people into debt in the way that it was two or three years ago—when it caused the concern that my right hon. Friend and my hon. Friend the Member for Warrington South (Faisal Rashid) now express for other forms of credit in this country.

I know that the Financial Conduct Authority has ruled out bringing in a cap for all forms of credit, but I again ask the Minister: how much more evidence do we need about these companies and the way they are evolving before we learn the lessons of payday lending?

In the Financial Times this week, the owners of Amigo Loans boasted about how the lack of regulation and the changes in regulation have benefited their industry. By not capping all forms of credit, in essence, we are pushing people into other forms of high-cost credit and towards other legal loan sharks. How much longer do our communities have to suffer? The truth is that they are suffering. I am a Labour and Co-op MP, so I would love to see more credit unions, but they cannot compete with such companies and their rapacious behaviour, or with the way they have evolved to evade legislation.

We need comprehensive legislation. Please, let us not have another year of the Minister and me arguing, yet again, about the benefits of that silver bullet. There is no single better thing that we could do than cap the cost of all forms of credit in this country to give an even playing field, to make sure that the banks treat people fairly, to make sure that all forms of new credit treat people fairly, and to give our communities hope for 2019 when their wages do not match up.

It is a pleasure to serve under your chairmanship, Sir David. I thank the right hon. Member for Birkenhead (Frank Field) for raising this important issue, which, as he knows, I have been passionate about since our days of setting up Feeding Britain. We went to South Shields and Salisbury to look at the experience of people using food banks. We even travelled to Paris together to try to get some inspiration for how to get the right model—

Absolutely. I really want to make progress on the issue during my time as Economic Secretary, and in my response I will draw attention to some of the measures that have been taken.

I also had the pleasure of working with the right hon. Gentleman on the Select Committee. The assiduous way that he has pursued the challenges that people on low incomes face is legendary across the House. The whole House admires his efforts.

I want to get to the heart of the matter. The right hon. Gentleman has raised a number of issues about the conduct of Provident, as have five other hon. Members. We also had a conversation earlier this week. I recognise that he sees a citizens bank as playing two roles—first, ensuring that the poorest members of society can access core banking services, and secondly, providing credit to those people to help them to smooth their income, spread costs over time and cope with unexpected financial shocks. I will address each of those in turn.

I will set out how the progress that the Government have made on ensuring access to core financial services such as bank accounts has been achieved. The nine largest personal current account providers in the UK are legally required to offer a basic bank account to customers who are unbanked. Those accounts must be fee-free and must not have an overdraft facility.

The right hon. Gentleman drew attention to the key issue of the need to access affordable credit. The Government’s vision is for a well-functioning and sustainable consumer credit market that can responsibly meet the needs of all consumers. I think there is some agreement on that vision on both sides of the House.

I recognise that we face a playing field that is not level. My hon. Friend the Member for South Suffolk (James Cartlidge) and other hon. Members raised the point about advertising budgets, which is why one of the Budget announcements seeks to tackle the barriers faced by key partners such as housing associations to referring people to sources of affordable credit. The default setting is to find a better option than some of those that can be found on Google.

Has the Minister considered speaking to Google and other companies about that? It is a good point that it is very difficult to police the robot algorithm that sets up their adverts. I do not see how he can do that unless he speaks to the companies themselves.

I am happy to take on that suggestion. I will look into what we can do as part of the challenge we also set in the Budget to introduce technical solutions to try to level that playing field and to make community development financial institutions such as Scotcash, which I visited in Glasgow in September, more accessible earlier in that process.

On Financial Conduct Authority regulation, I will try to address the points raised by the hon. Member for Walthamstow (Stella Creasy), who has raised the matter in the House previously. There was a review in May, although she does not agree with all its conclusions. Since the review, I have had more conversations about Amigo Loans and other issues, such as what can be done to monitor and to provide the evidence. In the interests of responding to the right hon. Member for Birkenhead, I will not carry on, but I do not want to be flippant about the serious concerns of the hon. Member for Walthamstow.

The FCA governs the rules about the provision of credit and is responsible for the regulation of consumer credit. It is a robust regulator, which I always encourage to be even more robust. It has the tools to take swift, effective action against improper practices. My regular dialogue with the chief executive, Andrew Bailey, and the director of strategy and competition, Christopher Woolard, covers that topic, and I know that high-cost credit is a priority for them.

The right hon. Gentleman specifically highlighted a number of worrying examples of high-cost credit lenders in Birkenhead. I listened with concern and serious dismay to the impact of those practices on vulnerable consumers. I hope the action that the FCA is undertaking in relation to lenders, as part of its broader review of the high-cost credit market, will have some impact.

The right hon. Gentleman mentioned Provident. The FCA is consulting on new rules and guidance specifically for home-collected credit firms. I will draw its chief executive’s attention to this debate. The rules will include requirements for firms to clearly explain the costs of a new loan compared with the cost of refinancing an existing one, and guidance stating that firms cannot visit customers to offer new loans without an explicit request from the customer.

The provision of affordable credit is a multifaceted problem and there is no single solution to overcome it. It is not sufficient to simply tighten regulation for high-cost lenders. Therefore the Government are desperately keen, and have taken steps, to ensure that low-income consumers can access safe, affordable and sustainable credit. In our civil society strategy, we announced that £55 million of funding from dormant assets would be directed towards addressing the problem of access to affordable credit and alternatives.

In the autumn Budget at the end of October, the Chancellor announced a package of measures to support affordable lending, including a prize-linked savings scheme to encourage the growth of the credit union sector. Although the sector is variable in quality, as has been discussed, there are opportunities to expand it. Another measure is an affordable credit challenge fund to encourage the UK’s vibrant FinTech sector to solve the challenges that I just discussed with my hon. Friend the Member for South Suffolk. A further measure is a change in the regulatory boundary to allow registered social landlords to offer their tenants better community lenders. A final measure is a feasibility study into a no-interest loan scheme, and a pilot of that scheme.

The right hon. Member for Birkenhead is absolutely right that banks have a responsibility to assist and facilitate better solutions in this area. Earlier this year, we took through the House the single financial guidance body, which will be a huge partner in working—I hope—with the banks, which often have worthwhile initiatives that are piecemeal and not joined-up. My vision, which is very similar to his, is of the banks coming together to recognise that, across the country, there are pockets of poverty and deprivation that need a new solution, which involves pooling their expertise and endeavour and working closely with the single financial guidance body to deliver a better set of options and outcomes for the constituents for whom he has been fighting so earnestly for 40 years.

I thank the right hon. Gentleman for securing the debate. He and other hon. Members have raised some significant issues that I take to my heart and back to my office. I hope I have offered him some reassurance by setting out the comprehensive and concerted actions that the Government have taken with the FCA to address the challenges in this area. I am clear that the Government are on a journey to actively and comprehensively support vulnerable borrowers. I want to continue to work with him, and other hon. Members from both sides of the House, using the knowledge and expertise that exists, to come up with even better solutions to deal with a real problem in some communities in this country.

Question put and agreed to.