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Debt: Consumer Credit

Volume 690: debated on Wednesday 7 March 2007

asked Her Majesty’s Government:

Whether they will hold discussions with banks, building societies and credit card companies, with a view to addressing the problems faced by those in financial difficulty.

My Lords, we hold many discussions with banks, building societies and credit card companies on a variety of issues in support of our goals of creating an open and competitive consumer credit market while minimising over-indebtedness. This includes regular meetings with Ministers and discussion with the advisory group on over-indebtedness, as detailed in the Government’s Tackling Over-Indebtedness: Annual Report 2006.

My Lords, is the Minister aware that during the passage of the Consumer Credit Act 2005 I twice moved a simple amendment requiring loan providers to see that debtors had some means of meeting their new obligations? In the light of the recent especially high rate of insolvencies and repossessions, do the Government now think they were wrong to reject my modest amendment? What are they going to do to remedy this most appalling position that so many people find themselves in today?

My Lords, the noble Baroness took an active part in the passage of that Act but, ultimately, it was a decision for your Lordships' House and the other place. In association with the Financial Services Authority, the Government have a national strategy for financial capability, which will reach 10 million people and help them with money management. The Treasury has commissioned work in developing financial capability further. We are spending more than £47 million on a debt advice project, and the DWP is rolling out £36 million in a growth fund to increase access to credit unions. We are taking in hand other matters to deal with indebtedness. It is a serious issue, and we are taking steps to ensure that lenders are responsible when they lend to people.

My Lords, will my noble friend recognise more fully the public interest points that the noble Baroness raised? Does he agree that the grasping attitude of some of the organisations referred to in the Question suggests that competitiveness, which the Government strive for in every aspect of business, is not very successful in the banking world when unduly high profits are made, to the detriment of the consumer?

My Lords, my noble friend has a valid point; I will take on board what both he and the noble Baroness have said. The Government are ensuring that lenders take a responsible approach, and the consumer credit reforms will help in that respect. For example, regulations will make consumer credit advertising clearer and fairer. We have introduced pre-contract information to help consumers become better informed before entering into a credit agreement. The Consumer Credit Act 2006 also strengthens the existing consumer credit licensing regime, which will ensure that the OFT can take into account irresponsible lending practices when considering who should hold a consumer credit licence.

My Lords, with Britain’s personal debt increasing by £1 million every four minutes, it is right for the Minister to be as concerned as he is, and I am delighted to hear what he is doing to help prevent the problem worsening. What is he doing to prevent the unethical marketing of individual voluntary agreements? Will he support the Conservatives’ calls on the Advertising Standards Authority to enforce the rules governing the marketing of IVAs more rigorously than at present?

My Lords, the noble Baroness makes a fair point. We are taking action on individual voluntary agreements. A very small proportion of individuals obtaining credit have difficulties. IVAs are not sold; they are contracts between debtors and creditors, which must be approved by 75 per cent in value of those creditors. IVAs can be administered only by licensed insolvency practitioners, who are subject to stringent regulation. As the noble Baroness said, there have been concerns about the quality of the advertising of IVAs. The OFT has recently taken action and written to 17 IVA providers regarding areas that it feels require attention.

My Lords, does the Minister accept that this is a classic area where prevention is better than cure? Can he update the House on the Thoresen review and indicate when the Government expect to put in place a proper national system of consumer advice on financial matters, rather than the series of piecemeal initiatives we have had to date?

My Lords, I will write to the noble Lord with details of the Thoresen review. I have already outlined the considerable steps the Government are taking to ensure that there is proper advice for people in debt. Only a minority of people get into serious debt—something like 1 per cent of all borrowers. Nevertheless, we are taking a number of measures, including providing the National Debtline to give advice, to which the DTI alone is giving £1 million per annum.

My Lords, noble Lords on all sides of the House are concerned about the problems that many people are now encountering with loans that they have taken out. Given the massive profits that we have seen banks receive recently, will the Minister consider having discussions with the Opposition and the Liberal Democrats about the possibility of all parties coming together to agree the reintroduction of windfall taxes?

My Lords, my noble friend makes an interesting point but, to be frank, I do not think that that is on the cards. There are no plans to go down that road. Indebtedness is a problem, but one of the major drivers of indebtedness is unemployment. I am glad to say that, under this Government, we no longer have mass unemployment; we have record levels of employment, which assists people greatly in the financial sphere.