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High-Cost Credit and Debt Management

Volume 774: debated on Monday 10 October 2016


Asked by

To ask Her Majesty’s Government what assessment they have made of the harm to consumers caused by unsolicited real-time promotion of high-cost credit and of debt management solutions.

My Lords, the Government have transferred responsibility for the regulation of high-cost credit and debt management firms to the Financial Conduct Authority. This more robust regime is helping to protect consumers better. The Financial Conduct Authority is currently reviewing its consumer credit rules in relation to cold calling, particularly to high-cost credit and debt management, and expects to publish the outcome of the review by the end of the year.

Cold calling is a huge problem. The FCA acknowledges that many of the 30 million cold calls selling fee-paying debt management services were misleading and damaging, and affect the most financially disadvantaged in our society. As the Minister said, the Government promised that the FCA’s review of cold calling will be published before the end of the year. Will the review look at why cold calling for mortgages has long been banned but not for high-cost credit or fee-paying debt management services?

The answer to the last part of the noble Lord’s question is in relation to what happened with the introduction of the right to buy, back in the 1980s. There was some mis-selling by mortgage brokers, targeting council house tenants who had the benefit of a huge discount. They were not really interested in the creditworthiness of those people as mortgage borrowers and that is why that measure was introduced. On cold calling, the Government will introduce legislation through the Digital Economy Bill which will place, via the Information Commissioner, a statutory obligation on a code for cold calling. In this year’s Budget, additional provision was made to protect particularly vulnerable people from cold calling.

My Lords, should not the Government take action now to put a finite figure on what credit organisations can charge? Normally, the poorest people in the community pay the highest rates of interest.

The noble Lord is quite right. That is why we introduced a cap of 0.8% on payday loans. That means if you borrow £100 for a day, the maximum amount that can be paid in interest is 80p.

This review being undertaken by the regulator, the FCA, is very welcome. Nevertheless, it is not just cold calling, is it? Advertising is allegedly controlled but I watched an advertisement last night on television that was highly questionable. Is it not a matter of bringing together all the authorities—the Advertising Standards Authority, the FCA and other direct selling bodies—to have not just a review but an action plan to sort this out? Many elderly people are being duped out of thousands of pounds. Is it not time we really took action on this issue?

I understand the strong feelings held by many noble Lords on this subject. As I said, in this year’s Budget, a large sum of money was identified to help vulnerable people and enable them to stop these sorts of calls being made. On cold calling by debt management companies and credit companies, there is a code they must abide by. If they break the code they can be fined. Last month, one payday loan company had to repay £34 million in redress because it broke those guidelines.

My Lords, I declare an interest as patron of Christians Against Poverty, a voluntary organisation based in Bradford dealing with debt management. Does the Minister agree that debt management is an area where there is very significant participation by the not-for-profit voluntary sector? Will he undertake to draw the attention of the FCA and other authorities to the participation of this sector so that it may be listened to and its role receive the recognition that will help people in these problems?

I pay tribute to the initiative taken by the most reverend Primate in his setting up of LifeSavers, a joint project by the Church and credit unions which the Government helped to finance. That is helping children develop good financial habits at a young age by setting up saving clubs in primary schools, in partnership with credit unions. I also welcome the initiative of the Church of England in establishing the Just Finance Foundation to develop and implement the most reverend Primate’s vision of creating a fairer and more just financial system. Of course I will take on board the suggestions he made in his question.

My Lords, do the Government agree that part of the problem is that we have so many different regulators involved with different products—whether it is the Information Commissioner, trading standards or the FCA—that there is complete chaos and no one quite knows where they are protected with which product or who to contact when there is a problem? Is the Minister indicating that in the legislation the Government will bring forward, there will be one responsible individual across the board to co-ordinate that, or is the role he proposes for the Information Commissioner a very narrow one?

Of course, the Information Commissioner covers a wide variety of cold callers, whereas this Question is about high-cost credit and debt management solutions. The FCA is currently going through a process of authorising debt management firms and high-cost credit companies, and if they do not meet the high standards of the FCA, they simply will not be allowed to go on carrying out their business. It is not a complete shambles, which I think was what the noble Baroness said. We transferred responsibility from the OFT to the FCA simply because it has a more robust regime for dealing with any misuse of cold calling.

My Lords, what measures have the Government been able to take in relation to the calls that come from overseas, which I understand are now the majority?

If the calls come from overseas, obviously the response that we can take in this country is limited. But if they are calling on behalf of companies based in this country, we can take action because a high-cost credit or debt management company that takes information from a telephone company based overseas has a responsibility to make sure that that overseas company acted in accordance with the code in this country. So we can get at them through the companies based here.

My Lords, how soon does the Minister expect that the change to the FCA will produce action? This problem has been with us and with large numbers of our fellow citizens for a very long time and the Government are saying, “We need a code”. We know exactly what these companies are doing wrong. It is effective identification and then punishment that are required.

The FCA has brought right to the front of the queue the process of authorising the firms that the noble Lord referred to. It is going through that process as we speak and hopes to complete it relatively soon, depending on progress. As I said, if those firms do not meet the high standards set by the FCA, they will not be allowed to continue trading.

My Lords, vulnerable and disadvantaged people want, need and desire credit as much as the rest of us do. The problem is, they cannot afford cheap credit because their credit status is not high enough, and I very much welcome the comments of the most reverend Primate. Will the Minister take back two queries to the DWP? First, given that so many people are spending up to 25% of their income on debt repayment—that is coming out of benefit income—can we ensure that jobcentres, benefit offices and other outlets promote the credit union initiative? Secondly, will he ask his colleagues in the DWP to look again at the ending of the Social Fund, which provided regulated, cheap and safe credit for essentials for people, which is no longer available to them?

I agree entirely with what the noble Baroness said about promoting credit unions. We want a sustainable financial services sector, and that is why we have invested £38 million in credit unions through the Department for Work and Pensions credit union expansion project. We are also providing half a million pounds to help Armed Forces personnel access credit union services where they want so to do. There are other initiatives we are taking to support the credit union sector, and I will pursue with colleagues at the DWP the suggestion she made about the fund.

Will the Minister confirm that the FCA will ensure that the companies it looks at do not participate in any of the forwarding on of contact details of vulnerable people who comprise the “suckers’ lists” that have been exposed, which deliberately target people who are very vulnerable, often with a degree of impaired mental capacity, who are entrapped because of their situation? Many of these people have failed to untick the box saying that their details can be handed on and therefore inadvertently have complied with the compiling of such lists.

The noble Baroness has put her finger on the problem: many of these so-called cold calls are not cold calls at all. They are called warm calls in that, perhaps inadvertently, people have ticked a box on a website which has enabled that site to contact them at a later date or, even worse, to share their details with other providers. I hope that the FCA can pick up on this as it goes through the authorisation process. As I said in response to the initial Question, the FCA is reviewing the consumer credit rules in relation to cold calling at the moment and I will ensure that it takes on the very valid point that the noble Baroness has just made.

My Lords, I am delighted to hear that the Government are reviewing cold calling. I would be grateful if my noble friend could confirm that that review will also consider banning cold calling for pensions, in light of the recently introduced freedoms.

I take this opportunity to thank my noble friend for her services at the Department for Work and Pensions up to last July—services which are missed by nobody more than myself as I now have to do some of her work. So far as cold calling for pensions is concerned, I note that my noble friend has taken this up since people have been able to switch their pot out of their providers and into something else. I cannot say whether this will be swept up in the review of high-cost credit and debt management but I will certainly see that the point is taken on board elsewhere.

My Lords, many of the calls that people receive are clearly mendacious. They say, “We are representing a British bank” and then something about compensation, which is just not the case. Will the credibility of any code not depend on the industry itself having a financial responsibility for recompense?

I am sure that the noble Lord is correct in what he said but I did not quite catch his question. Perhaps he could repeat it.

Will the credibility of any code, to which reference has been made, not depend on the industry accepting financial responsibility for compensating the people who have been in some sense the losers from the mendacity of the original caller?

That is exactly why the FCA has been instituting these fines. As I said, last month it ordered a payday loan firm to repay £34 million to 97,000 customers for unfair practices. Another firm which acquired customer bank details in an underhand way has agreed to a £20 million redress scheme. There is built into this scheme the necessity of those who break the rules compensating those who have been hard done by.