Consumer Credit and Debt Management

Anas Sarwar Excerpts

Thursday 3rd February 2011 Commons Chamber

[Anas Sarwar (Glasgow Central) (Lab)]

I congratulate my hon. Friend the Member for Walthamstow (Stella Creasy) on securing the debate. I agreed almost entirely with the comments of my hon. Friend the Member for Darlington (Mrs Chapman) apart from the use of the descriptive term “gentleness”. I think the emotions of passion and commitment were more apparent in the contribution of my hon. Friend the Member for Walthamstow.

This is a timely debate, because we are still experiencing the effects of the worst global financial crisis in over 70 years, which plunged the global economy into its deepest recession. As a result, the finances of households throughout our country, especially those on low incomes, are balanced on a knife edge. Four out of 10 people in the UK are worried about their current level of debt, and with household debt set to increase according to the Government’s own Office for Budget Responsibility, we need to do all we can to make sure that they do not go over the edge due to irresponsible and unfair lending.

I am a supporter of both the Consumer Credit (Regulation and Advice) Bill and today’s motion, because they seek better regulation of unfair lending practices in the marketplace, where disproportionately high interest rates or charges, and sometimes a combination of both, can be levied. Such a move would bring a welcome stop to short-term lenders charging wholly excessive APR rates, which people are often so shocked to read about. The highest I have found was on an infamous website only a couple of days ago that was providing a very modest APR of 4,200%. People often say that it is unfair and misleading to quote annualised rates for short-term credit, but even if we break it down to a weekly or monthly rate, they are by no means cheap. We also have to question what happens when a person experiencing financial hardship finds him or herself in an even more difficult situation and cannot make the agreed repayment date.

No one is arguing for credit to be withheld from people who need it; what we are calling for is responsible lending, coupled with protection for vulnerable consumers, and an open and fair market. It is important not to single out short-term credit when dealing with unfair practices, but to deal with the market as a whole. That is another reason why I support the motion, as it encompasses all forms of lending and would include, for example, credit cards and store cards, the regulation of which the Government have already committed to. Quite significantly, what we are calling for would bring the situation in our country in line with what is increasingly becoming the position in other countries around the world, for example those in Europe and the United States, and even in some parts of India.

I am also extremely pleased to see that the motion addresses the important issues of financial literacy and financial exclusion, which are the other half of the problem. In a recent Westminster Hall on bank account provision in Scotland, I illustrated the problems that financial illiteracy and financial exclusion can create. In a former life I was a dental practitioner—I am a glutton for punishment; what can I say? Our practice employed a new dental nurse who had no credit history at all. She did not have a driving licence, she was straight out of school and she had sadly lost her birth certificate, as her parents had had a messy separation. She was not able to open a simple bank account. Instead, every week she had to take her cheques to one of the local pawn shops and pay £3.50 just to get her weekly salary. That is a simple story, but the same situation affects a great number of people across the UK, and when they find themselves in need of credit, they often turn to short-term lenders. According to research, 5 million to 7 million people are denied credit either because they do not have a bank account or because they have no credit history.

I admire credit unions, and I am a great believer in their work. Indeed, Glasgow has more credit unions and members than any other city in the United Kingdom, with 34 credit unions in total and more than 120,000 members, and financial asset portfolios of more than £170 million. Credit unions are grass-roots organisations that are truly community-led. However, what I admire most about them is that they actively work to improve the financial literacy of their members and tackle financial exclusion. It is in that context that they have an invaluable role to play in our country, because not only can they offer accessible financial services, but they could provide some of the financial education and debt management advice that so many need. I hope that the Government will look to invest more to expand the work of credit unions in the coming months.

The Consumer Credit (Regulation and Advice) Bill and the motion before us represent an excellent opportunity to show that, during these tough economic times, we will look not only to protect the most vulnerable, but to bring about a cultural change in this country in our approach to savings and debt. I sincerely hope that hon. Members in all parts of the House give the motion and my hon. Friend the Member for Walthamstow the support that they deserve.