High Cost Credit Bill
Debate between Christopher Chope and Damian Hinds
Damian Hinds
Of course it is; no one would deny that—well, perhaps some would, but I certainly would not. There is a big issue about individual responsibility, but this market is a complex one, and it can be difficult for people to find their way around the jungle of credit that is available. People who take these loans are often in very vulnerable circumstances, and I am afraid that the purchase decision—people can blame whoever they like—often ends up being made not on the product that is “right for me”, but the one that the person has just seen on the television or the person who came to the door.
Damian Hinds
As ever, my hon. Friend tees me up nicely for my next point, which is about affordability. This is different from the issue of an overall cost cap. People need a bank account to get a payday loan, and payday lenders will typically require proof that they have a pay day on which a regular amount of income comes in. The Bill proposes a single real-time database. For myself, I think that is a step too far. This would be a database of every loan that everybody in the country has, and to be effective it would need to cover not only payday loans, but credit card debt, mortgage debt, car debt and all sorts of other debt. There are massive worries in that, relating to privacy, civil liberties, the concentration of data and, of course, what happens when, inevitably at some point, it goes wrong. I do think we need to look at serious reform of the existing credit reference agency system, however. It does not seem to work as it should when people who are overstretched and who have had eight, nine or 10 lines of credit extended to them go to debt advice agencies.
Another issue is making sure the loan actually gets paid down over time. There is a big fashion for restricting roll-over. We need to be careful about that, however, because it deals with the immediate issue we happen to face in 2013. I remind Members that 10 years ago roll-over was something we understood only in the context of the national lottery and 20 years ago we understood it only in the context of “10 in the bed and the little one said”. In terms of loan products, it is a new thing, therefore, and I would rather we instead had a general duty to make sure the loan gets paid down over time. That should apply to instalment credit and revolving credit as well as to payday loans. A product that is advertised as a 30-day loan should, therefore, be paid down fully by 60 or 90 days, but the payback should start before that 60 or 90 day point is reached.
Damian Hinds
I had better not, as I am about to conclude.
On debt advice referral, I agree with the hon. Member for Sheffield Central that signposting at points of risk is vital, but there are even simpler things we could do, such as making sure that when people are actively trying to signpost themselves to debt advice, they find it more easily. I am thinking in particular about internet search engines, where keywords can be purchased by commercial providers when we might prefer the search went immediately to not-for-profit organisations.
Finally, I want to talk very briefly about three issues that are not covered by the Bill, but which are closely related to it. I mentioned our not being able to beat something in the market until we come up with something better. The first issue relates to mainstream banks and the fact that part of the reason why payday loans are popular is because of the behavioural charges people incur at mainstream banks and the bounce charges. We need to work on that, and if possible remove the cause at source. There is no such thing as free banking; there is only banking which is paid for by different people in different ways at different times. There is cross-subsidy from people with more complex, perhaps even chaotic, banking affairs to people who have simpler banking affairs—or to put it another way, banks make money out of people going overdrawn accidentally and being charged for it.
This is politically difficult, but people ought to cover the real economic cost of their current account. If that were the case, it would pave the way for a different type of bank account—a jam jar account, or budgeting account—which would make it much less likely that people would trip into debt.