Justin Tomlinson MP tabled a successful amendment with Robin Walker MP (Conservative, Worcester) to the 'Consumer Credit & Debt Management' motion, which he had helped secure through the Back-Bench Business Committee.
The debate proposed a limit on the amount payday, doorstep and hire purchase lenders can charge, with measures to be enforced to protect consumers, following the credit review. This was passed with cross-party support.
Justin Tomlinson MP, "This was an essential debate, as we sought to protect the most vunerable consumers from becoming trapped in a cycle of high cost credit. I was delighted that the amendment myself and Robin Walker MP secured will press the Government to explore: total cost of loans cap, financial education, sales techniques of door step lenders, access to affordable credit and promoting a savings culture. There was cross-party support for action, with amendment seeking for it to be done in a co-ordinated manner, making sure consumers are protected without pushing people into the hands of illegal loan sharks.
The areas which I pressed for action included:
- Total Cost of Loans Caps – I fully support the principle of introducing a ‘cap’ on the total cost of a loan, limiting the amount someone has to repay. This should be considered as part of the credit review, with a clear objective to find a workable form of total costs caps.
- Doorstep Lending – It is crucial that we look into the sales techniques of doorstep lenders. The ‘nudge-nudge’ techniques, where the doorstep lenders visit residents in their home, and encourage them to borrow yet more money over a cup of tea, helps trapping residents into a long-term cycle of debt.
- Financial Education – Following on from my launch of the All-Party Parliamentary Group to promote Financial Education for young people, working with Martin Lewis of MoneySavingExpert.com, it is vital that we help equip the next generation of consumers with the necessary skills to make informed decisions and become savvy customers, with the confidence to shop around.
- Transparency – We need to continue to increase the transparency of costs and interest rates, to allow consumers to fully understand the implications of the loans they are signing up to. All too often loan companies use complicated marketing jargon and small print to help seduce consumers into costly, long-term arrangements. This is a subject I press not just lenders, but also Banks and Building Societies with relation to their savings accounts.
- Credit Unions – I fully support efforts to increase access to credit unions. In the long-term, we must give serious consideration to making this service available through our Post Office network.
- Savings Culture – As a society we need to address the principle of savings. As a nation we have an insatiable appetite to ‘buy now, pay later’. Over the long-term we need to change that, because where possible people need to have a savings buffer for changes in the circumstances. Evidence shows that the majority of people who fall into financial difficulties have do so due to a change of circumstances such as loss of a job, family bereavement, divorce etc, leaving them unable to service their debt.
I will continue to work with cross-party MPs to deliver the much needed consumer protections."
Justin Tomlinson MP's Speech (including interventions):
Justin Tomlinson (North Swindon, Conservative)
I thank the Backbench Business Committee for agreeing to the request from Stella Creasy and me for this debate. There is true cross-party support for this-more than 40 Members from different political parties supported us-and we were delighted to secure this three-hour debate. I am pleased that so many want to speak, which shows a real desire to make a difference on this crucial issue.
Many hon. Members will set out compelling reasons for the importance of this issue from their individual casework. Organisations such as the citizens advice bureaux say that 60% of their work is dealing with financial difficulties. It is surely better to tackle the problem at the source, but all too often consumers are simply not equipped to make informed decisions. It is the high-cost lenders who take advantage.
Robert Buckland (South Swindon, Conservative)
My hon. Friend and I organised a debt awareness day in Swindon, where we found an alarming lack of knowledge, including people thinking that the APR was the be-all and end-all and not realising that the total package could be dramatically more expensive. The motion addresses that problem.
Justin Tomlinson (North Swindon, Conservative)
My hon. Friend is spot on, and all too often we find that consumers are simply not equipped to make informed decisions.
It is suggested that total cost caps are the solution, and I support the principle. Surely there is an unequivocal case for saying that for borrowing X amount, there should be an absolute limit on the sum to be paid back. We should protect consumers from the very worst.
The motion is 99% there, but the amendment expresses a slight hesitation. There is still a nervousness, because whatever we do will have consequences. When organisations such as Consumer Focus and MoneySavingExpert, which is run by Martin Lewis, say that we must be mindful of possible consequences, it is right and proper that we should take a measured and detailed look at the issue to ensure that the consequences are thought out. The evidence is inconclusive-
Bill Esterson (Sefton Central, Labour)
I take the hon. Gentleman's point about the consequences, but the evidence from Members on both sides of the House suggests the problem is with the difference between voluntary and mandatory regulation. Unless enforced, the regulation just will not happen.
Justin Tomlinson (North Swindon, Conservative)
That is why I support the principle, but-as the hon. Member for Walthamstow said-it is essential that we make things better, not worse. We should not rush in if we have not considered all the consequences. However, we need to act urgently and, crucially, with a desire to find a workable form of total cost caps. For those people who say that additional regulation would push people into the hands of the illegal loan sharks or that extra action will damage our case for protecting vulnerable consumers, I point out that we have just seen significant changes to the credit card industry that have not affected people's access to credit cards. We should not fear that the market would collapse.
I urge the Minister to look into the sales techniques of doorstep lending. They include nudge-nudge techniques that encourage people to take on expensive, long-term debt. Such lenders concentrate on having relationship managers who go into the homes of the consumers. They argue that that helps them to assess whether the consumer can afford to borrow more money. The relationship manager has a cup of tea and a chat. They might ask, "Christmas is coming up, have you made plans for that?" The consumer says that her children want the latest expensive toy, and the representative offers to lend some money-at a high cost. The consumer is nudged into a long-term cycle of debt, and that is one of the most important areas to consider.
My flagship issue is financial education, which is included in the motion. I launched the all-party parliamentary group on financial education for young people on Monday, with my hon. Friend Duncan Hames and the hon. Member for Walthamstow as vice chairs. Some 171 MPs have signed up and it is supported by the Personal Finance Education Group and Martin Lewis of MoneySavingExpert. I am grateful for that support, as it is unbelievably important that we have savvy consumers who understand that they can shop around and are equipped to make informed decisions.
There is an incredibly strong case for making the costs more transparent, and it is another reason why total cost caps are so important. All too often, people judge a debt on the APR. There are many issues with high APRs, but there are extra charges as well, which is why the crude cap on interest rates alone was previously rejected. There should be a cap on everything. That would also allow consumers to make good comparisons.
I know that some hon. Members will criticise organisations such as Wonga.com, but I have to give it some credit, because of all the organisations that have lobbied me, it is the only one that has said, "We will work with whatever changes are put in place." That should mean clear, understandable and transparent costs-I would support that. However, we cannot just look at APR. Part of Martin Lewis's financial training for me was the following good example: if someone takes out £3,000 on a credit card at the age of 19 on a typical APR of 17.9% and makes only the minimum payments, they will not clear that debt until they are 60 years old. Although the 17.9% does not look too bad, there are long-term implications, which again supports the principle of total cost capping, showin