Credit

My parents were of the generation who were young adults in the second world war and they brought up their family in the years that followed. I remember that debt was anathema to them. If people could not save to buy something for cash, they could not have it. We live in a very different world. For most people, debt is a way of life. Our mortgages, our big-item borrowings and our credit cards have become the foundation of many household economies. What matters to most people now is not what we can save up for, but what debt we can afford to service. We can argue until the cows come home about whether that is good or bad, but the fact is that it is the reality of our modern lives. Without credit not only is our access to luxuries severely restricted, but our ability to access the basic necessities of life, such as a roof over our heads, is also at risk. If people have a poor credit rating, they can have a torrid time getting by. I shall give my right hon. Friend the Minister an example. A constituent of mine has just approached me for help. He and his new partner wanted to start their life together in their own home. It turns out that his partner has a poor credit rating as a result of problems in her previous relationship. She was not responsible for those problems and has done her best to address them, but, nevertheless, her credit rating has been tarnished. As a result, this couple have been told they cannot have a mortgage. When they approached private letting agents in my area, they were again told that the poor credit rating of my constituent's new partner would prevent them from getting accommodation in the private rented sector—and all that because one of the two, not both of them, is regarded as ““financially untouchable””. That cannot be right. I could certainly understand the financial services sector taking that view of an individual who had behaved recklessly or irresponsibly, but it appears to pay no regard to the specific circumstances of the case and is not prepared to show flexibility. I know that my right hon. Friend understands the importance of credit in the modern world. I also know that the Government have done a huge amount to give people with debt problems the advice that they need and realistic options to pursue. I hope that my right hon. Friend will use some of his time to set out those important initiatives, but my purpose in introducing the debate is to highlight the fact that this is a problem of growing significance and that we need to think about doing more. This problem is no longer isolated or one that affects only other people. It affects hundreds of thousands of families and people just like each of us. It affects people in the south and the north, and in all parts of the UK. It affects people of every social class and every lifestyle, and in every profession. In 2006-07, Citizens Advice dealt with 1.7 million inquiries on debt. The Department for Business, Enterprise and Regulatory Reform's Insolvency Service reported nearly 65,000 bankruptcies and about 42,000 individual voluntary arrangements in 2007. In addition, the debt resolution industry's estimate is that there are probably between seven and nine informal debt management plans for every person entering into an IVA. In other words, there could be 400,000 to 500,000 people becoming financially untouchable every year, and that is not including people who are shunned by the financial services sector just on the basis of their postcode or because they have a learning disability. If anyone listening to the debate thinks that this does not apply to them, they could well be wrong. Many people do not realise that they are in this position because they have not applied for credit for some time. They include people who had a glitch in their payment history some time ago, but recovered their position and began making payments again. Perhaps a personal problem arose, or there was a significant change in their life circumstances outside their control such as redundancy, a family emergency or a relationship problem. Such people, having regained control of their situation, are often blissfully unaware that they have a credit black mark until they try to remortgage or take on a new loan and find that their request is refused. A person in that category told me of his own experience. He had had a fixed-rate mortgage. When the fixed rate ended he was put on to the bank's standard variable rate, which was significantly more expensive. He tried to shop around and obtain a better deal, but discovered that he could not do so. Without knowing it, he had become financially untouchable as a result of a problem that he thought he had resolved to everyone's satisfaction. As time has gone on, he has found his extra mortgage costs increasingly difficult to finance. People in this category can find their mortgage costs increased by as much as 50 per cent., and can be forced back into debt problems that they thought they had resolved; many are even being pushed into insolvency. The problems faced by people who are financially untouchable have been raised with me not only by my constituents but by Mr. Richard Rubin, who is behind a website called ReallyWorried.com. I am grateful to him and his colleagues for helping me to prepare for the debate. On the website real people can talk about the problems they face, and other real people can offer solutions and advice. Mr. Rubin approached me because he was finding that the problem of debt was being frequently recorded on the site, and had specifically identified problems faced by people who had been deemed by the financial services sector to be financially untouchable. Mr. Rubin calls such people ““funts””, and he is reaching out to them through a new website called funts.co.uk. I hope that they will find some of the support and advice that they need there. I should add at this stage that I have also received excellent briefing from Citizens Advice, for which I am grateful. As we all know, Citizens Advice is an excellent source of advice for people with debt problems, and many people certainly need advice. My first request to the Minister is for the Government to review the advice and information available to people with debt problems, and to ensure that all who provide such services and advice make their own interests and biases clear. Good advice could prevent a lot of people from becoming funts, but whether advice is provided through Citizens Advice, a professional organisation or funts.co.uk, it must be good advice, unbiased advice and robust advice. I am pleased to say that the Under-Secretary of State for Justice, my hon. Friend the Member for Lewisham, East (Bridget Prentice), recently announced in response to the consultation paper ““The debt claim process”” that in future people in debt would always be offered advice from creditors to help them to avoid court proceedings. I believe that all creditors will be required to give debtors a chance to discuss their problems, and to provide details of people who can give free advice, before legal action is taken. I fear, however, that the advice will be made available only when legal proceedings are already on the horizon. I want people to be given help earlier, so that they do not get into that position. Too many organisations use our television channels to offer debt consolidation services and other easy ways out of debt problems, and I suspect that many are not being frank with their potential clients. Too few seem to be making it clear that if someone has a debt problem, consolidating the debt without addressing why the problem arose in the first place could well prove disastrous, and could put that person on the slippery slope towards becoming a ““funt””. In my view, someone seeking to consolidate debt could well already have a problem. It is at that early stage that people should talk to someone who will not pull their punches. Citizens Advice has provided me with a perfect example. A citizens advice bureau in Norfolk reported that a couple owing more than £62,000 had approached a secured-loan company seeking a consolidation loan. They had surplus income of £427 per month, but the repayments were £702 per month—a shortfall of £279 per month. The loan also put the clients into negative equity because they were in a shared ownership scheme with only £10,000 equity after the first charge. That company's website has a budget planner that asks for figures on income, expenditure and the amount to be borrowed, but the company itself did not seem to use it when making lending decisions. The CAB felt that that amounted to encouraging irresponsible borrowing and I entirely agree. On the subject of advice and awareness, perhaps there should be a financial education programme for people who want to understand their options better or just feel they need some help with learning how to balance their books. I would also like the Government to review the information that we receive on credit card bills because building up debt on credit cards is often the first step to building up a serious debt problem. I recently noticed that my credit card bill gave the advice—in tiny writing—that if I repaid only the minimum amount, it might take ““a long time”” to repay the outstanding sum. That is not wrong; given the rate of interest of many store cards, repaying the minimum amount each month could mean that it would take years to repay the debt. Why do we not insist that each credit card bill states the minimum amount to repay each month, plus how much would need to be paid each month to repay the loan in one year, and how much would need to be repaid to clear the debt in two years? That might stop some people getting into trouble by encouraging them to face their debt at a much earlier stage. The key point that I want to make is that the financial services sector needs to be made to recognise there is a big difference between ““funts”” who have been irresponsible and those who have faced up to their problems. Some ““funts”” have indeed been financially irresponsible, but some have been oversold credit or have been unfortunate. Some ““funts”” have faced their problems honestly, while others have not. There are easy ways to identify those who deserve to be cut some slack and those who do not, but, at present, the system treats people who have used bankruptcy as an easy way to avoid their debts almost the same as it treats those who spend years of their lives repaying as much as they can afford to those to whom they owe money. I would like those who work to repay their creditors to be offered the incentive of a clean credit record, with no black marks, no being treated as financially untouchable, and no waiting six years for credit blemishes to be overlooked. Such an incentive would mean more people paying more of their debt, so the financial services sector itself would benefit. It would also take advantage of the fact that people going through an individual voluntary arrangement or working through a debt management plan would learn budgeting skills and how to avoid the mistakes that they made earlier in life. Such an incentive would be a matter for the financial services sector, but the Government could encourage it to introduce that voluntarily. Failing that, there is a regulatory opportunity that would allow the Government to insist on such a reform. The Ministry of Justice is at a very early stage of consultation on the possibility of regulating debt management. The regulatory regime could be stretched to include the treatment of debtors by creditors and a credit repair provision for ““funts”” who do their best to repay what they owe. At the very least, the consultation could be used to stimulate a review by the industry of the issue and its attitude to people who have faced up to their responsibilities. Creditors must accept that if they do not agree to reasonable offers to repay debts, but take draconian enforcement action instead, they are piling on the pressure for consumers who can pay and want to do so. People in financial difficulties need support and understanding if they are to deal effectively with their debts. Those who want to be responsible need to be given an incentive, rather than being punished irrespective of what they do. My right hon. Friend the Minister might not be able to respond to all my points in his speech, especially because there is cross-Government responsibility for these issues involving his Department—the Department for Work and Pensions—the Department for Business, Enterprise and Regulatory Reform, the Ministry of Justice and the Treasury. However, I would welcome a letter from him after he has had a chance to consult his colleagues. The problem is serious for many of our constituents and it is getting worse by the day. Being a ““funt”” can mean losing one's home, or being denied a mortgage or re-mortgage, or even rented accommodation. It can mean not getting a new job, being denied insurance, or not getting a credit card, and thus being denied access to the bargains available via internet shopping. It can even mean being denied a pension policy or savings account. That might be a proportionate response to the behaviour of a feckless few, but it is extreme, even for them. For most ““funts””, who I am convinced have learned a lesson and are proving they are willing to do their best to repay their debts, such a response is disproportionate and unfair. I hope that my right hon. Friend and the Government will help them.