Financial Services Bill

All of us would have a great deal of sympathy with what has been said over the past hour or so, because the provision of small, unsecured loans to vulnerable people or people on very low incomes has been a problem for an extremely long time. It is difficult to see how we can legislate totally for the sort of things that people sometimes knowingly get into when they have no alternative or choice. The truth is that interest rates are often not a particularly good guide to the way in which we try to control the costs. A relatively small amount of money paid back over a relatively short period of time with what appears to be a reasonable fee for doing so translates into an extraordinarily high APR. If someone repays £50 within three months and pays £10 of £15 for the privilege of doing so—perhaps £5 a month—that does not seem very much, but when we do the maths, it translates into a large APR. Rate caps have been under consideration for a long time but are not the only measure by which we can try to control that practice. Administration, door-to-door collection, the lack of security and the potential for default all add to the cost of providing low-level loans. There may not seem to be many defaults, because the debt is often rolled forward. When somebody is about to default, the existing amount is rolled into another credit agreement. That is the slippery slope that gets people into difficult situations. Perhaps we ought to be more insistent about restricting such roll-overs. There is not much competition because not many people want to get into the business in a formal, legitimate sense. Much has been said about Provident. In my neck of the woods, I have had no complaints about Provident. Some people swear by the firm; because they have acted sensibly, Provident has been only too pleased to do business with them. Unfortunately, its major competitor, Cattles, failed a year or so ago. It is regrettable that the business was not picked up by another firm, to provide some measure of competition. There was clear evidence that Cattles was doing good business, but the way in which it managed that brought about its failure. Those whom I have come across who desperately want some emergency money are, in many cases, people whose benefit has not turned up although they were promised it, or who have been denied the opportunity of accessing the social fund. They may talk to their friends and neighbours and get into some arrangement that they did not intend. Credit unions could well provide greater opportunity to access money, but more credit unions are needed, their rules should be more relaxed, and there should be greater depth of business in the communities that they would want to serve. There are not enough credit unions in many parts of the country and the way to access them is not as well known as it should be. Although I agree that this area needs to be examined, I am deeply concerned that in an effort to protect the relatively small number of people who take on difficult contracts or resort to loan sharks, we might cut off some of the low-level unsecured lending that is well understood by a very large number of people who use it properly and do not default. We should not forget the growth that has taken place in other types of credit. An early-day motion has been tabled about log book loans, for example. That is an informal sort of credit that needs to be knocked out. We know that pawnbroking has changed, and that household items are now being pawned for small amounts of money. We have heard recently about advertisements which say, "Send us your bits of gold," for which very poor prices are paid, and about people being desperate enough to sell even family jewellery for relatively small sums. The practice of people accessing small amounts of money when they are in difficulty must be considered holistically, but the proposals we are considering concentrate on one area and may have the unintended consequence of reducing the provision of low-level credit for those who require it and are able to use it successfully. Turning to store cards, I must say that I hate the things—they should be banned—but I recognise that people ought to have a choice. None the less, the atmosphere in which people make an informed choice is entirely inappropriate. Some large stores almost seem more interested in selling people a store card than in selling them the thing that they went in for, and that is because the card makes the store more money. There is no doubt about that. The 10 per cent. that the business can give away on a purchase is small compared with what it will potentially get from the future use of the card. Putting some control on the use of such cards and fettering it a bit, so that people had cooling-off periods in which to reflect, would help. Perhaps our new financial education body will prompt those issues in people's minds before they sign up, willy-nilly, to such cards. That would help. If we are to go down the avenue of choice, so that people are able to exercise it if they wish to, we must make certain that it is an informed choice. Information must be provided prior to signing up, making certain that people understand exactly what they are signing up to, and after signing up, so that people not only have the information that enables them to repay at a rate with which they are comfortable, but understand the underlying costs of their decision to pay a certain rate. For example, they should know that it will take years to pay off the debt through minimum payments or that, despite the small amount of money that they have borrowed, ultimately, they will pay a multiple of that, having chosen a given store card,. There is a lot of merit in restricting such credit, in providing people with information and a cooling-off period for reflection, and in ensuring that they receive some real information about the exact costs of their choice. This is an interesting area of finance, and the Financial Services Authority and, perhaps, the Office of Fair Trading will have to continue to bear down upon it, because people are finding ever more ingenious ways to provide low amounts of credit. Undoubtedly, there are some unscrupulous firms. I certainly do not put Provident or, indeed, some others in that category, but some unscrupulous individuals deliberately target people who get into difficulty—often, for all the right reasons when they need emergency purchases, not luxuries. Sometimes their purchases are school uniforms, or something for the family, but people often fall foul of such unscrupulous individuals, and we need to try to protect them. However, to deny such credit services to those who use them satisfactorily would be a retrograde step, so I cannot support the new clause tabled by the hon. Member for Wolverhampton, South-West (Rob Marris). If the proposed restrictions on store cards were subject to a vote, I would support them because, although they do not go as far as I would like, they are a step in the right direction.