Consumer Credit Bill

I am not sure what the etiquette is for a Member who has so recently been a maiden himself—I broke my duck only 24 hours ago—in commenting on the maiden speeches of my hon. Friends. Sadly, I was not in the Chamber to hear the speech of my hon. Friend the Member for Tunbridge Wells (Greg Clark), but I will read it with interest tomorrow. I will certainly purchase the DVD. I have known my hon. Friend for many years and I know that his speech will have been effective and thought-provoking. I was privileged to be in the Chamber to hear the maiden speeches of my hon. Friends the Members for Basingstoke (Mrs. Miller), for Rochford and Southend, East (James Duddridge), for South-West Hertfordshire (Mr. Gauke) and for Hornchurch (James Brokenshire). My hon. Friend the Member for Basingstoke made an assured and confident speech. She showed a real love and affection for her constituency, which I think will make her an extremely effective representative. My hon. Friend the Member for Rochford and Southend, East made his constituency, particularly the pleasure pier, sound rather like Ibiza. Perhaps he and the son of the hon. Member for West Bromwich, West (Mr. Bailey) can compare notes. Everyone who serves in the House believes that he needs to shore up his political capital in his constituency, but my hon. Friend is the only Member who must physically shore up his own constituency—£40 million is a small price to pay to keep it intact. I greatly enjoyed the speech of my hon. Friend the Member for South-West Hertfordshire, although he made a slight mistake in using up a well-worn excuse with the Whips. It clearly worked for his predecessor, so perhaps he should not have discarded it so quickly. I am grateful to him for mentioning a former resident of my constituency, the poet laureate John Betjeman, who wrote beautifully about his constituency, as well the constituency of my hon. Friend the Member for Surrey Heath (Michael Gove) and my own constituency. Finally, my hon. Friend the Member for Hornchurch made a brilliant maiden speech that evoked the battle of Britain, the spirit of which he maintained in his determination to fight for his constituents, particularly on the issue of crime. He spoke movingly about his first constituency case, which involved a father and son who had got into great difficulties over debt. Debt is the subject of the Consumer Credit Bill. Although I have run out of privileges, having delivered my maiden speech 24 hours ago, today’s debate gives me an opportunity to make numerous gaffes and to trample unawares over the conventions of the House. I would be enormously grateful if my hon. Friends and other hon. Members would intervene to point out my mistakes. I still regard myself as a layman, and am surprised to find that with the introduction of the Bill the House has gone back to square one. The original Consumer Credit Bill was debated extensively in Parliament before the election was called. It received its Second Reading and completed the Committee stage, which consisted of eight or nine sittings. My hon. Friend the Member for Tewkesbury (Mr. Robertson) served on that Committee. After Third Reading, the Bill proceeded to the Lords, yet it is back in the House again. Perhaps one of the great virtues of our unwritten constitution is the requirement that we should go back to square one, but I would break with convention and be so bold as to suggest that we find a fast-track procedure for uncontentious Bills that have been subject to examination, even in a previous Parliament. When a new Parliament is elected everything that the previous Parliament did is forgotten, but in the 21st century we should move on. Having attended a great deal of today’s debate, it is a great pleasure as a new Member to witness a genuine debate. Most of the Bill is relatively uncontroversial, which may be why a genuine debate and exchange of ideas has taken place. I shall focus on two aspects of the Bill on which I have developed my thoughts as I have listened to hon. Members. First, however, I shall make a general observation about what the Bill is trying to achieve. Of course, we need to strike a balance and introduce the right amount of regulation, while allowing the free market to create the products of which consumers wish to take advantage. Individuals must take responsibility for their own actions, but the use of loans and debt effectively to enslave people in debt is reprehensible. There is no moral case for the 300 per cent. loan mentioned by my hon. Friend the Member for Basingstoke. The person offered that loan clearly did not understand it, and it would not be possible to repay the capital. Even in a relatively unregulated free market such loans and products should not be allowed to tempt people. We have heard a great deal in this debate about the state of the British financial services market and we are fortunate in having a thriving credit card industry. We have heard that there are more than 1,300 credit cards on the market, but I came across a remarkable statistic that says a lot about what is wrong with the financial services industry. Half the people who enter a shop and leave with a store credit card will have had no intention of taking up such a card from the store. As everyone knows, store credit cards tend to charge a far higher rate of interest than other cards. This very morning, I had a tyre changed on my car. I shall not name the organisation to which I went as it provided an excellent service in changing the tyre. I knew that I might have the chance to speak in this afternoon’s debate, however, and I noticed on the cash desk a large glossy sign promoting a store card with an annual percentage rate of 29.9. Under existing law, that may not be an extortionate credit agreement, but it is certainly way above the rate of interest that any sane or financially sophisticated human being would want to pay. I wish to declare an interest as several years ago I worked as a consultant for Virgin Direct, which provides Virgin’s personal financial services; it is Richard Branson’s financial services arm. Indeed, I now have a Virgin pension and individual savings account. When I worked for the company in the late 1990s, we ran a campaign to make financial regulation for personal consumer products much more transparent. Britain does not have the most sophisticated financial services industry in the world. The reason why Virgin went into that market is the same as that for which it goes into a lot of markets—it can spot an opportunity. It spots an industry that is complacent and that has forgotten about the needs of the consumer and is not providing innovative products. One of the products that Virgin brought to the marketplace was the current account mortgage, whereby people could pay off their mortgage effectively because it was treated as an overdraft. People could pay it off from their salary, and they could do so much more rapidly than with a conventional mortgage. I learned from that experience that, interestingly, Australia and New Zealand appear to have a far more sophisticated and consumer-oriented financial services market. I will be interested to hear from the Minister, either at the end of the debate or in the future, what consumer credit laws those countries have. I suspect that they have a relatively straightforward and laudable approach. One of the campaigns that we ran, which resulted in some Government action, related to the creation of CAT standards by the Treasury. The Treasury has its own sophisticated marketing arm, and the great Treasury brains got together and decided on CAT, which stands for charges, access and terms. The idea was that the ““charge”” aspect related to making clear the charge for a product, whether it was an ISA or a pension. In order to meet the CAT standard, the interest charge would have to be within 1, 1.5 or 2 per cent. ““Access”” meant being able to get in and out of a product without being hit by hidden charges, and ““terms”” meant that people were aware of all the terms that were in the wiring of the product, as it were, or the small print. We were dealing with very straightforward products such as ISAs and personal pensions. In effect, they were the sort of financial products that the middle classes use, but the consumer could still be hit by hidden charges and find themselves paying far more than they expected. That was the case at, if I can put it this way, the most honest end of the financial services spectrum. It is a matter of some regret to me that the Government did not pursue CAT standards and make more of them. I think that they took the view—I made this point at the beginning of my speech—that there was a fine balance to be struck between regulation and the service of the free market, and that they were concerned about being seen as over-regulating or heavy-handed. If Ministers had displayed more will, however, CAT standards would have taken off. I have no doubt that the free market has worked. Two legacies of the stakeholder pension, which, again, has not been as successful as it could have been, is the driving down of charges and increased transparency in the financial services arena. The Government do not need to worry too much about intervention to protect the consumer. By and large, financial products are opaque and sophisticated, but they should be simpler and more consumer-friendly. I support the Government’s objectives of making APRs as simple and straightforward as possible, of eradicating small print and turning it into big print and of making sure that such products are not marketed aggressively or deceitfully. I am especially interested in two issues, the first of which is the interest rate cap. To be honest, I did not have a strong view on the matter before I heard hon. Members debate it this afternoon. As a Conservative, my instinct is to oppose a cap as a regulation too far, but I cannot see how, even in the free market, anyone can justify loans at 300 per cent., 500 per cent. or 1,000 per cent. If there were an interest rate cap, such loans would not be available—a Labour Member made the telling point that they should not be available in the first place because they are a hiding to nothing. I recognise the dangers of regulation and of setting the financial situation in aspic. If the industry moved on after the introduction of an interest rate cap, it would be left with a relic from the past. I do not want to sound too much like a Liberal Democrat, but I wonder whether a possible compromise is an interest rate threshold above which products must be licensed. That idea may be worth examination, or it may be my second gaffe and one of the stupidest ideas ever heard in this Chamber. I have been extremely interested in the discussion about clause 19 on unfair relationships, which, I suspect, will be the main focus of debate in Committee. I agree with my hon. Friends that the Government should examine providing extra guidelines, because clause 19 is neither fish nor fowl. On the one hand, it may be too widely drawn because perfectly respectable lenders who have made perfectly responsible lending agreements could be vulnerable to frivolous and vexatious claims in which the courts would be asked to consider whether any part of those agreements is unfair. On the other hand, as we have learned from the 1974 Act, it may be drawn so widely that the courts are reluctant to intervene, even in cases in which the terms are clearly unfair. I urge the Minister to set out guidelines for the courts on the respective bargaining powers of the relevant parties, on the marketing and making of loan and credit agreements, on the availability of information, on small print, and so on and so forth. I welcome many other aspects of the Bill, such as the creation of an ombudsman and the need for creditors to provide regular statements to debtors. However, I agree with my hon. Friend the Member for Wealden (Charles Hendry) that the four-week check could inadvertently spawn a huge amount of bureaucracy. One issue that has often come up in my surgery—I do not know whether the Minister will have an opportunity to address it—is that of credit ratings. Many people have been given a bad credit rating by mistake and find it almost impossible to plough through the maze in order to have it removed. It is almost Orwellian or Kafkaesque. One is judged guilty, is unaware that one has been so judged, and when one pleads one’s innocence it seems almost impossible to reverse the judgment. We have talked extensively about people being seduced into bad credit deals, and that is partly due to the lack of personal finance education in our schools. People are happy to debate sex education at the drop of a hat on the radio and television shows on which I frequently appear. We constantly debate the merits of sex education in schools and recognise the importance of our children being properly educated in that regard, yet in purchasing a house or taking out a loan, which are some of the most important transactions that they will undertake—I thought that I would have to choose my words carefully—they enter the financial world as naked as the day they were born. Personal finance education is not as attractive a subject as the other one, but it is extremely important. Finally, I echo the point made by the hon. Member for West Bromwich, West about the need to deal with add-on products. All too often, a relatively benign product can be sold to a consumer only for them to be almost compelled to purchase a financial product that they do not need and has extremely unfair terms. We must ensure that lenders are not in a position to do that much too easily.