Consumer Credit Bill

Before I address some remarks to the Bill I would like to compliment the two Conservative Members who have made maiden speeches. The hon. Member for Tunbridge Wells (Greg Clark) gave an incredibly competent and self-assured maiden speech. I was particularly interested, in so far as we have one thing in common: I come from a spa town, Cheltenham. I was interested that he brought out the point that even within towns that are popularly considered to be affluent there are invariably pockets of poverty that must be addressed. The fact that they are in towns of affluence often makes it more difficult to do so. The quality of his contribution demonstrated the fact that he will be most effective in addressing those problems. The hon. Member for Basingstoke (Mrs. Miller) gave a fascinating history of Hampshire. The research that she did and the fact that she has obviously engaged with so many constituents’ problems already clearly demonstrate that she will prove to be a most effective representative for her constituency in this House. I wish both hon. Members well. Like others, I congratulate my hon. Friend the Minister on bringing the Bill before the House again. Like many others, I was very disappointed that it did not reach the statute book in the previous Parliament, and given the problems that it addresses, I was particularly concerned in case it was not reintroduced early in this Parliament. My hon. Friend has insisted on that and made sure of it, and I congratulate him. I see this Bill as an essential part of an anti-poverty strategy. It will not in itself deal with all aspects of poverty, but it undoubtedly addresses a particular contributor to poverty in this country that must be addressed, and it complements a range of other policies. I instinctively prefer a lighter-touch approach to manufacturing and in some cases to the financial industry, but given the debate on a number of issues in the Bill, particularly capped interest rates, industry must be made aware that this is a wake-up call and that the Government maintain a reserve power to take action if the proposals embodied in this legislation do not deal with the problems that have been so effectively articulated by a range of speakers to date. A number of Members have pointed out the changes that have taken place since the enactment of the Consumer Credit Act 1974. That made me think back to that year. I remember it particularly well, because it was the year when I first applied for a mortgage. I cannot help but contrast my experience then with that of people now. I remember, having saved in a local financial institution for some years, asking about the possibility of a mortgage. I had to sit down and go through all the details of my income and expenditure, and wait with some trepidation while the manager of the local branch looked through them dubiously before, with certain admonishments about the pattern of my future expenditure, grudgingly agreeing to give me a small mortgage. Now, that same financial institution is one of many bombarding me with offers of loans and mortgages that I do not want. If I had been told that then, I would truly have believed that the revolution had come. In many ways, of course, a revolution has taken place: the financial deregulation in the 1980s. It has led to a transformation in the financial world. We have a huge increase in lenders. That has led to more competition, and in many ways that is welcome. We have more sophisticated marketing, which has both its upside and its downside. This is meant for those people who are financially sound with good jobs and for those who are financially well educated. It has been a liberating experience for them. New opportunities have been offered to people in those categories. That has had a vital role in improving the lifestyle of many people, and I would not wish to decry or belittle that. There are other groups such as the unemployed, those on low incomes, single parents and some elderly people on low fixed incomes who have had an entirely different experience as a result of market deregulation. On one hand, they are bombarded with images of instant consumer gratification that can come with the flick of a credit card. On the other hand, they are confronted with the reality of having a low income, a low credit rating and high risk. When obtaining credit, they face high interest rates or, in addition, hidden charges. They are more at risk than others, and so many of the mainstream credit providers do not have the products that will suit these people. For a variety of reasons, people in some of the poorest areas on the lowest incomes are not able to have access to a range of products that are offered by the mainstream financial providers, because they have either withdrawn from those areas or because they are just not available to them. There is a vacuum, which is met by doorstep salesmen who peddle loans with high interest rates. Such arrangements are often disguised by complex regulations and promoted, sometimes, by simplistic and seductive marketing techniques. All too often these arrangements send people who are already on low incomes down a spiral of higher debt charges and greater poverty. For someone on a very low income, it takes only what we would consider a relatively small financial problem to place them on the slippery slope. A woman came to my constituency in tears. She lived in privately rented accommodation and her central heating system had packed up. Her landlord would not repair it. Instead, he gave her two convector heaters as a substitute. These heaters were eating up electricity. As a result, her fuel bills were rising. She ran into debt. She went to debt companies and there was a high interest rate. The process escalated until she was in a state of desperation. That is just one example, but I know that it is mirrored by those of hundreds of thousands of people throughout the country who live in communities like the one that I represent. A high proportion of people who live in constituencies such as mine have no bank accounts. Research was undertaken by Salford university in a Sandwell ward—the local authority—on behalf of the Sandwell credit union. Its findings showed that 33 per cent. of residents had no savings accounts, that 20 per cent. had no bank accounts and that 29 per cent. had debt problems. I know that these figures are reflected in other wards. All too often it is the small items—the need to have a washing machine, to provide school uniforms for the children and tragically, in some instances, the need for the elderly to pay for a funeral—that cause problems. An example from the local CAB is of someone borrowing £1,000 for a funeral to bury a relative and having to pay £600 in interest. My hon. Friend the Member for Hastings and Rye (Michael Jabez Foster) mentioned credit unions, as did a number of other Members. Credit unions play a valuable role in filling a gap in the market, and I am grateful for the efforts of Sandwell credit union to meet such demands. I wish it well. I should like to emphasise the fact that the financial services industry as a whole should give all the backing it can to credit unions, as there have been institutional obstacles to their development. I also emphasise the need for everyone, irrespective of their credit status, to play a role within credit unions; otherwise there is a danger that credit unions will be regarded as the poor man’s bank. Many poor people do not want to be associated with a poor man’s bank. Perversely, they feel more confident dealing with slicker financial institutions that do not offer the same sort of service. The work of credit unions should therefore be promoted.