My Lords, I declare my interest as the retiring chair of StepChange, the leading debt advice and solutions charity, which has already been mentioned this evening.
This has become a rather wide group of rather disparate amendments, and I worry that some of the important points that need to be made in this area might get lost. As well as dealing with the very important issues about the impact on children of payday loan advertising, the amendments in my name and that of my noble friend Lady Hayter propose measures, as we have just heard from my noble friend Lady Drake, to ensure a further clearing up of the payday lending sector as a whole. There are other amendments still to come which deal with elements that go together as part of this overall policy.
This is rather a dense set of amendments, and I apologise in advance for spending some time on the two amendments to which my name is attached, Amendments 105P and 105Q, but I think they are important. However, I do not want to lose the very good speeches that we have already heard. Somebody asked what the state of play is now in childhood. My noble friend Lady Crawley said that we have to think quite inventively about how the language of children’s
protection needs to be modernised when we are dealing with issues such as advertising more generally. Even to talk about restricting adverts in a system which is 50 years old—the watershed—is to ignore the complete change in viewing habits that we are currently living through, with people watching individual programmes in a variety of different information-gathering machines, such as tablets and iPads.
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We have a much more complex and difficult task, but the principles, which were extremely well set out by the right reverend Prelate the Bishop of Norwich, by my noble friend Lord Mitchell and by the noble Lord, Lord Alton, present the case for firmer, strictly enforced controls on what payday lenders are doing to children, not restricted to the form of advertising we are currently focusing on but not ignoring it either. We support these amendments.
On the other hand—as others have touched on—the statutory authority, Ofcom, and the non-statutory body, the Advertising Standards Authority, do a fair amount already, and we should be grateful for their achievements. However, the recent Ofcom statistics—already quoted—are quite chilling. I will just take three statistics, because some have been mentioned already. Over the past two years, when the volume of payday loan advertising has been at its highest, the majority of the spots they are paying for on television are airing between 6 am and 5 pm. Around four-fifths of younger children's viewing takes place before 9 pm, and we know that on average young people view around 1.3 payday loan ads on television each week, when they are watching about 17 hours of television. There is no doubt that the material that has been allowed to air is reaching people it should not be reaching. The consequences, as we have heard, can be difficult.
I pay tribute to the work that Ofcom and the ASA are doing. The ASA has told us that it has banned 25 ads since April 2013. This is a very small number of the total ads appearing and it will be a gradual process, largely relying on complaints and the responses to them, and will take time. The ASA makes the point—and it is a good one—that TV ads are subject to pre-clearance by Clearcast, which means that when the ASA bans an ad it sets a precedent. For example, the use of celebrities with a history of debt problems, or the suggestion that loans should be used for trivial reasons, should not be allowed in future. That gets applied in the pre-screening process. So just one ruling can have a very slow effect that can perhaps alter sector-wide practice. However, it will take so long to clean up this area that the noble Lords arguing for immediate action are very important voices.
What are we to make of the point hinted at by the noble Baroness, Lady Bakewell of Hardington Mandeville, about the ecology of advertising? The ASA told us it was worried about the watershed in a very peculiar way, which is worth airing. One of its points is that it is wary of the potential to “toxify” the post-9 pm environment. It is saying that if the majority of ads, perhaps the only ads, shown after 9 pm are going to be for alcohol, gambling, credit or other restricted products
that would otherwise be spread throughout the schedule, then there is a concentration of that “sinful” world. We can be happy that young children do not often watch after 9 pm—although in my household it does not always stop strictly on time—and in any case with the new technologies children will get around restrictions. There is an important point here, but the ASA may be overstating it when it says that it is quite possible that watersheds might even result in more viewing, and not less, of certain undesirable activities within certain groups. Be that as it may, the right thing is to get rid of these adverts using the powers we already have, so that the watershed period remains sacrosanct for as long as possible.
Turning to the two amendments to which my name and that of my noble friend Baroness Hayter are attached, the first is the one that my noble friend Baroness Drake spoke about. The free debt advice is currently funded through a compulsory levy on those lenders and financial institutions which are authorised by the FCA, and the levy is collected by the FCA. The levy is determined by the regulator and is based on the size of firms and the level of their debt write-off. Only a fraction of the over-indebted population, as we have heard, are currently getting the free debt advice and support they need. Recent research suggests that people wait as much as a year before seeking the advice and solutions they need. I do not think there is any doubt that more funding is needed in that area.
We know already that free debt advice helps to save relationships, boost productivity, improve mental health and enables people to stay in their homes. The Money Advice Trust has shown that the overwhelming majority of clients consulting the independent debt advice sector get an answer to their debt problems—92% of them said that they had benefited from a formal solution which made their debt more manageable—and other research shows that a year after seeking independent debt advice people with unmanageable debts are almost twice as likely to have recovered their situation to manageable, with the majority attributing debt advice as the main reason.
Not only individuals gain from this. Creditors gain significantly from the work of not-for-profit debt advice organisations. My charity put out a report recently on the social impact of independent debt advice which suggests that £175 million was saved for creditors each year. This comes from both improved recovery rates and reduced collection costs. The Friends Provident Foundation published research recently which suggested that creditors benefit by as much as £1 billion a year as a whole as a result of this sector.
This amendment, which is introduced because payday lending is causing widespread repayment problems, with over a third of loans issued in 2012 not paid at all according to the Competition and Markets Authority, is aimed squarely at payday lenders in the hope that we can persuade the Government that an injustice is being done if the basis under which people pay contributions to the FCA remains based simply on size and turnover.
As we have heard, payday lenders make a real intervention in a bad way to society. The result of that is a growing demand for debt advice, which places a
disproportionate strain on the advice providers. The rate of payday loan debt problems has increased. Five years ago the proportion of clients who came in to StepChange debt charity was about one in 50; now it is one in four. More than 66,000 people contacted StepChange debt charity for help with payday loans in 2013, double the number from the previous year.
We find that people with payday loan debt problems are typically already in acute repayment difficulties. On average, clients’ payday loan debts are £1,552, which is up a third in two years, and already exceeds the average monthly income. So there is no way in which they can repay the debts that they have.
If payday lenders cause a disproportionate level of consumer harm relative to the amounts they lend and to turnover, we think they should contribute to debt advice an amount relative to the level of detriment they cause—a kind of “polluter pays” principle. If payday lenders and high cost consumer credit firms were made to pay a levy this would significantly boost funding for free debt advice which is currently largely paid for by the traditional credit providers, for which they do not get the plaudits they deserve. As high cost credit providers only exist because there is not enough low cost credit available in society, it is right that they should also be required to make a contribution to the credit unions which provide the kind of low cost credit required but which lack the resources necessary to reach all who need it.
Amendment 105Q concerns the process under which payday lenders currently make loans. Although the new FCA regime for payday lenders is having an impact, including driving a considerable number of players out of the market—although, in my view, not quite enough—I am concerned that the FCA rules for payday lenders are not strong enough to prevent consumers from getting stuck in a cycle of high cost credit. The FCA has published plans to cap the overall cost of individual payday loans and is taking action to drive out unacceptable models. These are both steps forward which we welcome.
However, less welcome is the fact that the regulator has ruled out a limit on repeat or concurrent lending, even though this is often driving the most intractable difficulties. A growing number of problem people have been lent one affordable payday loan after another and have been pushed into a cycle of high cost debt. As the amendment suggests, a quick, accurate and comprehensive data sharing process is needed. However, the FCA is backing an industry-led, voluntary approach to the sharing of real time credit data.
The latest on this is that it expects 90% of market participants to be sharing data by the deadline later this month. That is welcome, but we believe a more prescriptive approach is needed to secure safer lending practices. Surely we need 100% of payday lenders to sign up to real-.time data sharing. This is the only way to make sure that all lenders have the information on which they can make a proper affordability check. We need to ensure that the data shared is comprehensive. All lenders need to have a complete picture of a borrower’s existing credit commitments, including any recently taken out. This has to be in real time. The FCA should require payday lenders to use real-time
credit data as an essential part of the affordability checking process. It is pointless to have access to real-time credit data if lenders do not use it.
Even on the FCA’s own analysis, after the cap was introduced the proportion of borrowers who experience financial distress as a direct result of taking out payday loans is expected to remain as high as 40%. We believe—and I think the research bears us out—that the majority of those will arise from people who have taken repeat or concurrent loans. The introduction of a regulatory database would be a powerful new tool to ensure that the FCA’s caps and restrictions are adhered to. In the face of a dynamic, shape-shifting industry, the danger is that the FCA will not have the tools to quickly clamp down on bad practice and will to some extent be playing catch-up with a consumer detriment that has already been done.
Real-time data sharing is a step forward that can help to deliver safer lending practices. However, it will do nothing to compel firms to lend in a responsible way. By contrast, a database backed by statute will exclude the possibility of lending outside certain specific rules from the outset. That is the sine qua non for the regulator to get properly to grips with unacceptable lending behaviour.