Financial Services Bill

Debate between Alun Cairns and Stella Creasy

Monday 23rd April 2012 Commons Chamber

[Alun Cairns]

I entirely agree. That is one of my reasons for opposing amendment 40. In my view, it will not achieve what it sets out to achieve, but will have far-reaching consequences for not only the FCA but consumers and providers.

[Stella Creasy]

Will the hon. Gentleman give way?

[Alun Cairns]

I will give way to the hon. Lady, and I trust that I shall then have a chance to respond to her question.

[Stella Creasy]

Will the hon. Gentleman enlighten the House on his concern about the expertise of the FCA and its ability to exercise the powers granted by the amendment? The amendment simply gives the FCA those powers; it does not direct it to use them automatically. I should also like to know why he was concerned by what the Minister said earlier about his support for the use of price regulation.

[Alun Cairns]

There are clauses that allow for product intervention and refer to terms and conditions, but that only underlines the fact that amendment 40 is not necessary. I do not understand the inconsistency. I am also worried about the reference to maximum pricing in the amendment. If it were passed, price regulation would be introduced to the financial services sector for the first time, because banking services are currently based on variable cost. Many products are intended to remove the risk from the consumer, and the risk is priced accordingly. Price controls could not accommodate changes and fluctuations in the marketplace. The amendment poses a major threat to the supply of valuable products to many consumers, to the free market, and to competition principles.

Direct pricing also poses the threat of practical consequences. How would the FCA determine the price of a product? One of my hon. Friends said that he considered 50% to be appropriate, but some Members are now shaking their heads, suggesting that that might be too high. How would the FCA decide whether the basis of pricing should be fixed or variable? What about the cross-subsidies that are arranged within financial institutions with the aim of securing the financial certainty that many consumers demand? What about the long-run incremental costs? It would be impossible to price products accordingly; but even if that were a solution, it would require a large-scale, sophisticated infrastructure body to provide continual oversight of the hundreds of products provided by hundreds of organisations.

For those reasons, I oppose amendment 40. In the same breath, however, I pay tribute to the campaigning that has highlighted the scandal of payday loans, and to the Treasury, which has responded accordingly. We have already heard that there will be a report by the end of the summer, and that it will be acted on. I hope that those who share the concern expressed by the hon. Member for Walthamstow about payday loans will be reassured by what has been said not only by Ministers but by Back Benchers, who will maintain the pressure for action.

Financial Services Bill

Debate between Alun Cairns and Stella Creasy

Monday 6th February 2012 Commons Chamber

[Stella Creasy]

I have answered this question in previous debates. I do not think that we should set a single rate of APR and I do not think we should have an interest rate cap: I believe we should have a total cost cap. In the absence of the Government making progress on such a cap, however, I view the FCA as offering an opportunity to start the more effective regulation of this industry. I hope that the hon. Gentleman would agree that the opportunity to have the industry and consumers setting rates and clarifying what is excessive and what counts as consumer detriment in the listing of these products represents a way forward. That is the argument of Labour Members, and we shall seek to table amendments on that basis. It is no wonder that the number of complaints about these companies and these loans is sky-rocketing in the UK.

[Alun Cairns]

Will the hon. Lady give way?

[Stella Creasy]

I am sorry, but I will not, as I do not have much time left and I have already taken some interventions.

Between October and December last year, there was a 25% increase in the number of people complaining about these companies, and three quarters of those complaints were upheld by the financial services ombudsman. Demand for these products will only get stronger. Two in five people are expecting a pay freeze this year, and one in five expect to lose their job. Inflation rates might slow, but that will only slow the pace of the cost of living, especially in the capital city. Six million people are already considered financially fragile; if one more bill goes up—their mortgage, transport costs or even their food bills—they will be pushed further and further into debt. With banks not lending to these people, it is these legal loan sharks who will pick up the pieces.

We should reflect on the fact that the one industry growing in this country is these legal loan sharks. Cash Converters proudly says it is going to open another 40 new shops—at 1,413% APR; while Albemarle is opening 300 new shops, charging 853% APR. This is also a serious issue for our economy. If millions of families have thousands of pounds worth of debt that they cannot escape, it is clearly going to impact on consumer confidence. This will be the new economic crisis that will come to Britain in the years to come if we do not deal with this problem, as we have concentrations of communities with thousands of pounds of debt hanging around their necks, limiting the choices they can make for their futures and limiting the kind of lives they can lead. The failure to tackle these issues will leave millions of people with unmanageable debt, yet we have an opportunity to make progress through this Bill.

This problem is not going to go away. It is right to look at the industry and for consumers to be involved in setting the rates and determining what is consumer detriment. Let me tell the Minister that the public clearly want action on legal loan sharks. His own Back Benchers want action on them. I welcome the conversion of Government Members to this cause. I just hope that it is a conversion that will continue all the way through to voting in favour of our amendments. Even the industry wants action. It does not want the current uncertainty.

My simple question to Ministers, if they will not accept our amendments, will not send out the message and will not finally tackle legal loan sharking is this: how much worse does it have to get for the people affected in our communities? We know that 4 million people in Britain are already borrowing from these companies, and there could be as many as 10 million if we do not deal with these problems within the next year. That will be 10 million people stuck in a cycle of toxic debt that will damage them and their families for years to come.

I therefore ask the Minister to take on board the suggested amendments and to take account of the desire of Members on both sides of the House for action on legal loan sharking. Let us finally make the third time a charm.